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
		13 January 2009

TABLE OF CONTENTS

	Para
BACKGROUND	1
THE ISSUES	5
THE TAG SCHEME	7
THE LAW	12
THE POSITION OF THE PARTIES	13
THE EVIDENCE	15
James McMullan	15
The First CFA	18
The Second CFA	43
The Appointment of the Litigation Friend	52
The Claimant's Capacity	58
The Letter of 4 May 2006	60
John Hesketh	65
Daniel Downes	75
SUBMISSIONS	77
THE CONDITIONAL FEE AGREEMENT DATED 20 JULY 2001: (ISSUES 1, 2 AND 3)	78
Conclusion	86
Materiality	94
THE CLAIMANT'S CAPACITY: ISSUES 4, 5, 6 AND 7	99
Conclusions	122
THE LETTER OF 4 MAY 2006: ISSUES 8 AND 9	132
Conclusion	136
THE SECOND CFA: ISSUES 10 AND 11	137
Does the Second CFA Comply with the Regulations?	146
Conclusion	152
Materiality	154
THE INDEMNITY PRINCIPLE AND THE LEI POLICY: ISSUE 12 AND ISSUE 13	160
Conclusion	170
SUMMARY	171
The Conditional Fee Agreement dated 20 July 2001	172
Issue 1	172
Issue 2	173
Issue 3	174
Capacity	175
Issue 4	175
Issue 5	176
Issue 6	177
Issue 7	178
The Letter of 4 May 2006	179
Issue 8	179
Issue 9	180
The Second CFA	181
Issue 10	181
Issue 11(a)	182
Issue 11(b)	183
Issue 11(c)	184
The Indemnity Principle and the LEI Policy	185
Issue 12	185
Issue 13	186

Chief Master Hurst:

BACKGROUND

1. On 22 April 2001 the Claimant, an unemployed drug addict of no fixed abode, who had previously served a prison sentence for robbery, was the front seat passenger in a car which collided with a stationary van. The Claimant sustained severe head injuries in the collision. The driver of the vehicle, the First Defendant, was uninsured, and accordingly the Motor Insurers' Bureau became involved in the claim.
2. The main issues in relation to the claim concerned the Claimant's contributory negligence, since he was not wearing a seatbelt, and the value of the claim, bearing in mind the effect of his previous drug use. A Litigation Friend, the Claimant's sister, was appointed at the end of March 2004, and the claim was issued in April 2004. The Second Defendant conceded liability on 6 January 2005 and judgment for damages to be assessed was entered on 21 March 2005. The claim was ultimately settled by consent for the sum of £1 million on 25 June 2007. The Defendants were ordered to pay the Claimant's reasonable costs, to be assessed if not agreed.
3. The litigation was funded under The Accident Group (TAG) scheme. The Claimant entered into a conditional fee agreement (CFA) with his solicitors on 20 July 2001. Following the judgment in English v Clipson, dated 5 August 2002 (in which District Judge Wharton decided that the requirements of the Conditional Fee Agreements Regulations 2000 could not be met by delegating the task of giving the relevant information to the client to a TAG representative), some time between 1 September 2002 and 4 December 2002 the Claimant signed a second CFA. The Claimant's solicitor Mr McMullan first met the Claimant and his sister, who later became the Litigation Friend, on 28 January 2003, all previous contact had been by telephone and letter. A conference with counsel was arranged for 4 February 2004, when counsel advised that the Claimant needed to have a Litigation Friend. Shortly after that, on 9 March 2004, the Claimant's general practitioner certified that he was incapable of managing his own affairs because of permanent mental disability. Mrs Findley Clarke was subsequently appointed the Claimant's Litigation Friend.
4. This sequence of events led the Second Defendant to raise a number of issues as to the validity of the two CFAs, the capacity of the Claimant and sundry subsidiary issues.

THE ISSUES

5. The issues fall into five main headings namely:

i) the conditional fee agreement dated 20 July 2001;

ii) capacity;

iii) the letter of 4 May 2006;

iv) the second conditional fee agreement;

v) the indemnity principle and the legal expenses insurance (LEI) policy.

6. The issues, which have been agreed between the parties, are in the following terms:

The Conditional Fee Agreement dated 20^th July 2001

1. Is the Conditional Fee Agreement dated 20^th July 2001 unenforceable because of a material breach of Regulation 4(2)(a) to (e) and 4(3) of the Conditional Fee Agreement Regulations 2000 in that the Claimant's solicitor failed to provide any or any adequate oral explanation of the matters required by those regulations before the CFA was entered into?

2. Is the CFA dated 20^th July 2001 unenforceable because of a material breach of Regulation 4(2)(c), (d) and/or (e) in that the Claimant's solicitor failed to provide the Claimant with the information required by those regulations, namely:

i. Whether the solicitor considered that the Claimant's risk of incurring a liability for costs was insured under an existing contract of insurance

ii. Whether other methods of financing the costs were available and, if so, how they applied to the Claimant and the proceedings in question

iii. Whether the solicitor considered any particular insurance product was appropriate and, if so, his reasons for doing so.

because he wrongly considered himself unable to do so and had concluded that the Claimant was 'contractually bound' to effect an insurance policy with TAG?

3. Did the Claimant solicitor have any discloseable interest in the TAG policy in the sense required by Regulation 4(2)(e)(ii)? If so, is the CFA dated 10^th July 2001 unenforceable because of a material breach of Regulation 4(2)(e) in that the Claimant's solicitor failed to disclose that interest adequately or at all before the Claimant entered into the CFA?

Capacity

4. Did the CFA with the Claimant come to an end as a result of a lack of capacity on the part of the Claimant at any stage during the conduct of the claim?

5. If so, is there any alternative basis on which the Claimant or his Litigation Friend can seek to recover costs claimed in the bill after the date on which the CFA came to an end?

6. If so, is any such alternative basis in any event a contingent retainer which does not comply with s.58 Courts and Legal Services Act 1990 and/or the Conditional Fee Agreement Regulations 2000 (if applicable) and is therefore unenforceable?

7. In any event, if the original CFA was terminated at any stage prior to the case being 'won' is the claimant liable for any costs under that CFA and accordingly is the claimant able to recover any such costs inter partes?

The letter of the 4^th May 2006

8. What is the status and effect of this letter (if and in so far as it is relied on by the Claimant)? In particular, does it amount to a reasonable variation of the retainer (if any) between the Claimant and the solicitor so as to allow the solicitor to vary the hourly rates unilaterally and without apparent limit in circumstances where the original CFA provides for any increase to be by no more than the increase in the Retail Price Index?

9. Does the letter amount to any wider variation of the terms of the retainer, in particular by:

i. Providing that the client will be charged for work done and expenses incurred even if the matter does not proceed to completion

ii. Including a provision for charging the Claimant interest, which was not present in the original CFA

iii. Including provisions in relation to the Claimant's liability to the solicitors on termination of the agreement that are more onerous to the Claimant than those originally provided for by the CFA?

If so, is the varied contract binding on the Claimant so as to allow the recovery of fees and expenses inter partes, whether at the rates claimed or at all?

The second CFA

10. Did the claimant enter into a second CFA in autumn 2002?

11. If so:

(i) Does the second CFA comply with the regulations? In particular is the claimant able to show compliance with regulation 4, especially (but not limited to) regulation 4(2)(d)?

(ii) Is the second CFA void because of undue influence, abuse or confidence and/or lack of consideration? In particular, was the claimant advised in relation to the potential unenforceability of the first CFA and was the claimant advised to seek independent legal advice?

(iii) Was the first CFA terminated when the second CFA was entered into? What is the effect of the second CFA on the client's liability for costs under the first CFA?

The indemnity principle and the LEI policy

12. Was the claimant's liability for the own disbursements limited by reference to the extent of his legal expenses insurance cover and his potential liability for adverse costs? If so, what is the effect on his ability to recover costs inter partes?

13. In any event does any failure to explain to the client any potential liability for own and/or adverse costs in excess of the limits of the legal expenses insurance policy amount to a (further) breach of regulation 4(2)(a) and/or 2(1)(b) such as to render the CFA unenforceable?

THE TAG SCHEME

7. The TAG scheme was examined by me in some detail when dealing with the issue of delegation to TAG representatives of the solicitor's duties under the CFA Regulations 2000 (judgment dated 27 November 2002), and dealing with premium issues (judgment dated 15 May 2003), and also swing premium (judgment dated 30 July 2003). My decision in respect of the delegation issue was upheld by the Court of Appeal in Hollins v Russell & Other Appeals [2003] EWCA Civ 718, and in respect of the premium issues in Sharratt v London Central Bus Co Ltd (No.2) [2004] EWCA Civ 575.
8. My judgment of 27 November 2002 set out, at paragraphs 11 to 16, the statutory framework governing CFAs, and I do not propose to repeat it here.
9. The Statutory Objective of the Courts and Legal Services Act 1990 is set out at Section 17(1):

"The general objective of this part is the development of legal services in England and Wales (and in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wide choice of persons providing them, while maintaining the proper and efficient administration of justice."

Sections 58 and 58A of the 1990 Act were inserted into Part 2 of that Act by the Access to Justice Act 1999 and are thus covered by the Statutory Objective.

10. In my judgment of 15 May 2003 the TAG contractual framework is fully set out at paragraphs 16 to 80. In this case that framework is essentially unchanged.
11. TAG went into administration in May 2003.

THE LAW

12. So far as relevant, the provisions of Regulation 4 of the Conditional Fee Agreements Regulations 2000 are as follows:

"4(1) Before a conditional fee agreement is made the legal representative must –

(a) inform the client about the following matters, and

(b) if the client requires any further explanation, advice or other information about any of those matters, provide such further explanation, advice or other information about them as the client may reasonably require.

(2) Those matters are:

(a) the circumstances in which the client may be liable to pay the costs of the legal representative in accordance with the agreement,

(b) the circumstances in which the client may seek assessment of the fees and expenses of the legal representative and the procedure for doing so,

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

(d) whether other methods of financing those costs are available, and, if so, how they apply to the client and the proceedings in question,

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

(i) his reasons for doing so, and

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

(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 paragraphs (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.

…"

THE POSITION OF THE PARTIES

13. I deal with this in more detail below, but, put shortly, the Second Defendant's position is:

i) That the first CFA is unenforceable.

ii) That no second CFA was entered into, or, if it was, that the second CFA is unenforceable.

iii) In the event that the second CFA is found to have been entered into, that nothing is payable under the first CFA in any event, whether it is enforceable or not.

iv) That in any event the retainer with the Claimant, whether under the first or second CFA, determined as a result of his lack of capacity on a date to be decided by the court.

v) That there is no, or only a limited, liability for costs up to the date the retainer was determined.

vi) That there was no retainer with the Litigation Friend thereafter. Alternatively, any such retainer was an unenforceable CFA.

vii) That in any event any liability for disbursements cannot exceed a maximum of £50,000 (the limit of indemnity under the ATE policy).

14. The Claimant's position is that:

i) The solicitors complied with Regulation 4(2)(e).

ii) If there was a breach it was not material.

iii) If the first CFA is enforceable, the second CFA is of no effect.

iv) If the first CFA is unenforceable, the second CFA is enforceable.

v) At the time of the second CFA there was a binding contract of ATE insurance and Regulation 4(2)(e) did not apply.

vi) If Regulation 4(2)(e) did apply, the solicitors nevertheless provided the necessary information, both orally and in writing.

vii) If the information regarding the solicitors' interest in the TAG policy was not properly provided, that failure would not be material because that information would have been of little value to the Claimant, who by then already had ATE insurance.

viii) When Mrs Findley Clarke became Litigation Friend she had the authority to, and did, affirm or ratify the CFA between the Claimant and his solicitors.

ix) If both CFAs are unenforceable the Claimant is nevertheless entitled to recover the costs of his disbursements and counsel's fees for which he took out a loan.

15. In support of the Claimant's proposition, Mr Power relied on the evidence of James McMullan (the Claimant's solicitor), John Hesketh (an assistant solicitor with the firm at the time) and Daniel Downes (an assistant solicitor with the firm at the time). Mr McMullan and Mr Hesketh were cross-examined. The Second Defendant did not call any evidence.

THE EVIDENCE

James McMullan

16. Mr McMullan explained that he had joined the Panel of Accident Group Solicitors in 2000, although the exhibited Panel Agreement is dated May 2001, he was at first "quite hesitant and apprehensive" and agreed to take no more than ten cases a month initially. His practice was to read through the cases which were sent to him, and weed out those cases which he thought had no prospect of success. This would leave him with something between 8 and 15 possible cases out of the 20 to 25 that were sent to him. He explained:

"It was then my practice to telephone each and every client to speak to them individually and ask them to explain exactly how the accident happened and to find out what supporting evidence was available … whilst on the telephone with the client I would go on to give the client the advice required under Regulation 4 of the Conditional Fee Agreement Regulations 2000."

17. Mr McMullan was a member of The Association of Personal Injury Lawyers (APIL) and in particular the "Costs and Funding" and "Procedure" special interest groups. Between 1994 and 2002 he regularly attended group meetings where speakers gave useful updates concerning this area of personal injury practice. He exhibited his professional development (CPD) record over the years, which bore out what he was saying. One of the talks which he attended was given by Gordon Exall, a barrister specialising in personal injury work, who was also a member of APIL. His talk was specifically on the issue of the Conditional Fee Agreement Regulations 2000. Mr Exall provided those attending with a check list setting out the advice which had to be given to clients in order to comply with the Regulations. Mr McMullan used this check list for his practice, both at the time and up until it was replaced by an updated version. Mr McMullan no longer has the earlier version of the check list. Mr McMullan "took on board the advice given by APIL" and where possible implemented their best practice advice in his firm.

The First CFA

18. On 13 July 2001 Mr McMullan, having received from TAG the case of Lindsey Findley, telephoned him. He recorded a brief attendance note, which it is worth setting out in full:

"13 July 2001

I rang client to check out case. It looks like a substantial claim. I explained who I was and that his case had been referred to us via The Accident Group and I am a panel solicitor. He did not seem to be able to understand this. I then explained about the CFA we were sending him and asking him to sign, liability for our costs, etc, financing of the case and whether he had any existing insurance policies. I don't think he understood a word I said. I tried again slowly and kept it to basics but with respect to him, he is clearly a man of limited intelligence. I confirmed that the TAG rep would come out to his home and take him through the papers again and ask him to sign up. If he had any queries to contact me."

Below this, in manuscript, is written:

"This man has suffered a severe head injury!"

19. In his witness statement Mr McMullan explained that he had telephoned the client to get more information. He (the client) was able to tell Mr McMullan about the accident, but when it came to the explanation that the case had been passed to the solicitors through TAG, and the advice about the funding arrangement, he did not seem to understand what Mr McMullan was saying. Mr McMullan continued:

"I persevered nonetheless and went through my check-list and the advice concerning the conditional fee agreement and The Accident Group scheme with the linked insurance policy. I believe that I went through it with him two or three times. It is difficult to say how much he took in. At this point I had no clear picture how seriously injured he was."

20. This attendance lasted 24 minutes and Mr McMullan described it as a lengthy conversation. He said he was able to assess the Claimant's ability to give him instructions and his mental capacity generally. He formed the view that Mr Findley had sufficient capacity to understand what the case was all about and to give instructions. He was capable of holding a conversation and answering questions. Mr McMullan thought he had spoken to Joy Findley Clarke, the Claimant's sister, at an early stage to find out what she knew about the insurance position concerning the vehicle in which her brother had been travelling. He thought this was about 13 July 2001. In his view, if she had thought Lindsey Findley was incapable of dealing with his solicitor she would certainly have said so.
21. With reference to his comments in the attendance note of 13 July 2001 Mr McMullan said that when he met the Claimant subsequently he felt he had not done justice to him, since he was able to hold a conversation and told Mr McMullan his history as a market trader. He was able to give instructions. Mr McMullan has a diploma in dealing with elderly clients and suggested that he had considerable experience in dealing with clients with impaired mental ability. He agreed that, with the benefit of hindsight, the Claimant did require a Litigation Friend. He and Counsel had been concerned because of the Claimant's continued drug use.
22. Under the TAG Scheme, a TAG representative would call at the client's home with two full sets of documents, namely the client care letter, conditional fee agreement, fact find and oral explanation sheet and documentation in respect of the after the event legal expenses insurance policy. All these documents were TAG documents. Under the TAG Scheme no success fee is charged in the CFA. The representative, in this case Sarah Nicholls, would take the client through the documentation using the fact find and oral explanation sheet. It is known that this visit took place at the home of Joy Findley Clarke, where Lindsey Findley was living following the accident, the date was 20 July 2001. TAG having gone into liquidation, it has not been possible to contact Sarah Nicholls, and there is therefore no direct evidence of what took place on that day.
23. The fact find and oral explanation sheet was signed by Lindsey Findley on 25 July 2001 (bundle tab 4, page 353). The answers to the fact find questions indicate that: the client does not have the benefit of legal expenses insurance which would cover his own costs, third party costs, or both sides costs; nor does he have insurance attached to any motor policy. He is not a member of a trade union which would provide funding. He is said to understand that the information and explanation is obtained and given on behalf of the panel solicitor and is happy to proceed on the basis that if he has in fact other legal expenses insurance cover in relation to the claim, then it may affect his prospects of recovering the premium for the policy and may be deducted from his damages. The oral explanation states as its final paragraph:

"10. We understand that you do not require any further explanation, advice or other information about these matters."

24. At the end of the document Sarah Nicholls confirms:

"That the above information was given by the claimant and that I orally gave advice in relation to the panel solicitor's CFA and the legal expenses insurance policy as detailed above, on behalf of the panel solicitor."

25. For his part the Claimant signed confirming:

"That the above information was provided by me to the TAG representative and that I received the oral explanation in relation to the panel solicitor's CFA and the legal expenses insurance policy as detailed above. I am aware that the TAG representative is obtaining the above information and providing me with the above explanation on behalf of the panel solicitor."

26. In relation to the conditional fee check list, which is Mr McMullan's own document, and which bears the Claimant's signature and the date 20 July 2001, Mr McMullan explained that this is a document similar to the one that he would have had in front of him when speaking to the Claimant on the telephone on 13 July 2001, when he would have gone through the information with him. He stated that the check list does not spell out exactly everything he would have said to him, but would have prompted him about all the matters which he had to discuss. The discussion itself would have gone into greater detail.
27. Point 6 of the check list (bundle tab 4, page 356) states:

"My solicitor has discussed after the event insurance and it has been agreed that a contract of insurance is appropriate. My solicitor has informed me why the insurance we have chosen is appropriate and the interest he has in recommending the policy of insurance is that my solicitor is on the panel of The Accident Group Scheme."

28. In relation to this Mr McMullan states in his witness statement:

"15. … I would have reiterated the advice again about the ATE policy with TAG and I would have explained to him that my firm received no commission whatsoever on this policy but that it is insurance for his case alone. The only interest is that my firm are on the panel of the TAG Scheme and were under an obligation to use their policy. I would have indicated that the level of indemnity cover under the policy was £50,000 which at that point I felt would have been sufficient cover, given what I knew about the case then …"

29. Although Mr McMullan was at the time a member of The Accident Line Protect Scheme, he said he would not have discussed other ATE policies with the Claimant, because he was being handled under the TAG Scheme. The Claimant was aware that he was a panel member, and that his case had been referred to the solicitors.
30. With regard to the £50,000 limit of cover on the TAG policy, described in the letter to the client of 18 July 2001, McMullan thought that £50,000 was more than enough. The purpose of the policy was to protect the client so that he would not have to pay out if he lost. Mr Mallalieu suggested that £50,000 was simply not sufficient to cover the Claimant's own disbursements and counsel's fees, his opponent's costs, the policy premium and any applicable loan interest. Mr Mallalieu pointed out that the Claimant's own disbursements, including VAT, amounted to £112,583.35. Mr McMullan said that had he thought it necessary he could have increased the level of cover, but he had obtained an informal admission of liability, and on 31 January 2005 obtained judgment on liability. The Claimant's risk, therefore, was limited to failing to beat any offer which might be made. The Defendant would in any event be liable for costs up until 31 January 2005. Mr McMullan stated that he always told the Claimant of any disbursements which were to be incurred.
31. Mr McMullan wrote to the Claimant a letter dated 13 July 2001 (bundle tab 2, page 132):

"It is a statutory requirement that you are provided with certain advice before you sign any documentation. I have enclosed for you a copy of the documentation and would like to confirm that a representative of The Accident Group will contact you by telephone very shortly to arrange an appointment to call in and see you on our behalf to ensure that you understand the nature of your agreement. Please do not sign or return the documentation until this visit has been carried out."

32. In cross examination Mr McMullan said that his normal practice was to include with the TAG documentation a copy of his own check list.
33. In his supplemental witness statement, dated 23 October 2008, Mr McMullan stated that he dictated the letter of 13 July 2001 on that date but that it may not have been posted on that date because a second client care letter was sent dated 18 July 2001. Both letters were prescribed TAG letters. It was Mr McMullan's practice to send two copies of the TAG documentation to the client, one for the client to sign and return after being visited by the TAG representative and other for the client to keep. The documentation sent consisted of the client care letter, conditional fee agreement (terms and conditions), the fact find and oral explanation sheet and the conditional fee check list.
34. The client care letter of 18 July 2001 (bundle tab 2, page 133) runs to three pages, plus a further nine pages setting out the conditional fee agreement itself. In the letter the Claimant was told that the solicitors' charging rate was £175 per hour. The letter continues:

"We would ask you to note that our hourly charging rates are reviewed on 1 January of each year and may be increased. However, we will write and advise you further in this respect should this occur."

35. At the end of the letter Mr McMullan, on behalf of his firm, confirmed that:

"Prior to the signing of this agreement we and/or our duly authorised agent on our behalf verbally explained to the client the matters in paragraphs (a) and (e) under "other points" in the attached terms and conditions and confirm the matters at (e) in writing in schedule 2.

This agreement which comprises this letter and the attached terms and conditions complies with the Conditional Fee Agreement Regulations 2000 (SI 2000 No.692)."

36. The matters in paragraphs (a) and (e) under "other points" are:

"Immediately before you signed this agreement we and/or the duly appointed agent verbally explained to you the effect of this agreement and in particular the following:

(a) The circumstances in which you may be liable to pay our disbursements and charges;

…

(c) Whether we consider that your risk of becoming liable for any costs in these proceedings is insured under an existing contract of insurance. In particular we drew to your attention that you had, prior to our instruction, agreed to purchase a legal expenses insurance policy from the underwriters;

(d) That you had also agreed to fund the purchase of the legal expenses insurance from the underwriters by a loan from First National Bank Plc;

(e) Having regard to points (c) and (d) above that we were unable to discuss other methods of financing those costs, including private funding, community legal service funding, other legal expenses insurance policies, trade union funding."

37. Under Schedule 2 the agreement states:

"The Insurance Policy

As you have already agreed to purchase a legal expenses insurance policy from the underwriters we have not recommended any particular insurance product to you and you may in these circumstances wish to obtain independent legal advice in this regard.

In any event in all the circumstances and on the information currently available to us we believe that a contract of insurance is appropriate to cover your opponent's charges and disbursements in case you lose.

We are not however insurance brokers and cannot give advice on all products which may be available."

38. The client care letter is also signed by the Claimant, who is informed:

"Please note that signature of this letter by you:

1. Constitutes confirmation of your instructions to us.

2. Confirms that we have verbally explained to you the matter (sic) in paragraphs (a) to (e) under "other points" in the attached terms and conditions.

3. Confirms the matters at (e) in writing in Schedule 2.

4. Confirms that you have read and understood this letter (including the authority to deal with monies received on your behalf as set out in the Section entered "your obligations to repay your loan") and the attached terms and conditions and that you accept the same as being the basis of the agreement between us."

39. The date beside both signatures is 20 July 2001.
40. The conditional fee check list (bundle tab 4, page 356) although bearing the date 20 July 2001 (see paragraph 24 above) was in fact signed by the Claimant on 20 January 2003. Mr McMullan had travelled to Wolverhampton and attended upon the Claimant and his sister in order to take further detailed instructions. He explained again how the CFA scheme worked with the linked ATE policy and went through the Regulation 4 check list again. Neither the Claimant nor his sister had any questions about the CFA retainer, and both were satisfied with it. Mr McMullan continued:

"At this point I still believed that Lindsey understood sufficiently about his case and it did not seem to me that it would be necessary to appoint his sister as his Litigation Friend. I therefore got him to sign my CFA check list but not his sister, although she was certainly present when I gave the further explanation. I believe that I then dated the CFA check list 20 July 2001, although in fact he signed it on 28 January 2003. Although this now appears perhaps unwise I did it because I had used the same check list when giving the advice over the telephone in July 2001. These were my records and I certainly did not intend to mislead anyone with the date."

41. Mr McMullan explained that he did not rely solely on the TAG representative to give the necessary explanation. He described himself as a generally cautious person and had followed the best practice advice given by APIL using the check list which was not a TAG document.
42. Dealing with his attendance note of 13 July 2001, Mr McMullan thought he might not have given the client sufficient credit as to the level of his understanding:

"He certainly knew that he had been in a serious accident and that he had a legitimate claim to pursue and that this could well result in him receiving substantial compensation. I did go through the matter with him a second time so that he would have a clearer understanding."

The Claimant actually improved as the case progressed.

The Second CFA

43. The Claimant's file was then passed to an assistant solicitor John Hesketh, who dealt with the matter under Mr McMullan's supervision. Following the decision in English v Clipson Mr McMullan instructed his fee earners to get out all their TAG files and contact every client as soon as possible to go through the oral and written advice requirements and the CFA Regulations 2000:

"I insisted that each fee earner had to ensure that:

(i) the oral advice was given in accordance with the Regulations (and we had a training session in the office so that all fee earners were clear as to their obligations); and

(ii) they sent out fresh CFA papers (this consisted of our own CFA check list, separate client care letter confirming in writing the advice required by Regulation 4 and the CFA retainer) for the clients to sign."

44. Although Mr McMullan understood Mr Hesketh to have carried out this instruction, the relevant papers can no longer be found. Mr Hesketh left the firm in December 2002 and Mr McMullan resumed conduct of the matter. In his attendance note of 4 December 2002 he notes that the Claimant had "re-signed CFA re English v Clipson". Before the CFAs were re-signed the fee earners were required to give the Regulation 4 oral advice over the telephone. Mr Hesketh had been instructed to use a check list similar to the one produced in the case of R Hull (which was exhibited as an example), which was signed on 29 October 2002. Mr McMullan believed that the Claimant signed another CFA in or about September 2002.
45. The purpose of the second CFA was so that if the first CFA was found to be unenforceable, the new CFA would be effective from the date it was signed. Mr Mallalieu pointed out to Mr McMullan that in the bill lodged for assessment, which had been signed by him with a certificate of accuracy, no mention was made of the second CFA. This was, he said, because his firm relied on the first CFA being accurate. The Second Defendant's Points of Dispute requested full details of the Claimant's retainer, and any variation. The Claimant's Replies to the Points of Dispute, dated 4 December 2007 and signed by Mr McMullan, again made no mention of the second CFA. Mr McMullan stated he thought it would complicate the matter to mention it, since his primary case was that the first CFA was valid.
46. The check-list signed by the client in respect of the second CFA was in virtually the same wording as that signed in respect of the first CFA. Mr McMullan felt that this gave the client sufficient information to comply with the Regulations. One feature of the check-list was to show that the solicitor was giving advice to the client and not the TAG representative. The client was again told by letter (in the case of Mr Hull, dated 24 September 2002, bundle tab 4, page 411):

"You have taken out, or agreed to take out such a legal expenses insurance policy with The Accident Group. We have no interest in the policy and we do not receive any commission on the issue of the policy, although we are panel members of The Accident Group Scheme. You are aware that you took out a loan with the bank, either Bank of Scotland or First National to fund the policy premium and disbursements. The loan and interest will be repaid from damages if you win the case, although we should be able to recover the disbursements and policy premium or part of it from the defendant in the event of a successful outcome of your case."

47. Mr McMullan had drafted this letter, and his staff were required to use the letter in respect of all TAG files, so that a CFA could be re-signed. Towards the beginning of the letter there is a paragraph in bold type:

"We now enclose another CFA and client care letter. Please sign both documents on the last page. We also enclose with this letter a CFA check-list which we require you to sign and return. Please note that we cannot carry out any work on your case until we receive back the signed paperwork."

48. Mr McMullan confirmed that the second CFA signed by the Claimant would have been in the same terms as the original CFA. The firm was aware of inconsistencies between what was said in the TAG documents and the advice which they gave to the their clients, they therefore had to have something signed by the client, since they were not allowed to change the CFA. The signed check-list was intended to show that the client had received the Regulation 4 advice before the agreement was signed.
49. Mr McMullan accepted that if the first CFA was unenforceable, the firm would have to bear that loss. He did not suggest that the second CFA was retrospective. Under the second CFA the client is told that he is liable to pay from the date of the agreement. He accepted that the client had not been told of the effect of the two agreements on each other.
50. On 28 January 2003 Mr McMullan visited the Claimant and his sister at the home in Wolverhampton. He subsequently prepared a full attendance note (bundle tab 4, page 429 ff). In respect of costs:

"I explained to him again the CFA and how this works, that he has an ATE policy with The Accident Group and the purpose of this. We went through the Regulation 4 check-list. J Hesketh had already given him this advice and got him to re-sign the CFA earlier but I did it again for the avoidance of doubt. I asked him if he had any queries about the agreement with my firm and he said that he did not. Joy did not have any questions either."

51. Mr McMullan said there was no reason to change the insurance, which he felt was adequate for the Claimant's needs. He thought he would have told the client that he was unsure whether the first CFA was enforceable or not, and therefore he had been asked to sign a fresh agreement. The fee earners in his firm had been trained as to what they had to say in respect of the check-list. Mr McMullan confirmed that there was no specific or separate retainer agreement with the Litigation Friend. She had stepped into the Claimant's shoes as his Litigation Friend and was happy to carry on under the terms of the original CFA.

The Appointment of the Litigation Friend

52. On 4 February 2004 a conference took place with counsel Mr Stephen Campbell in Birmingham. This was the first time that counsel had been instructed to advise in the case. Mr McMullan asked counsel to advise specifically whether he thought the client required a litigation friend. According to Mr McMullan's contemporaneous attendance note (bundle tab 4, page 438) counsel felt, having read the papers:

"that it all pointed to the fact that the client was effectively a patient whether under the Mental Health Act or otherwise. In the circumstances he advised that we deal with this immediately at the outset of the conference and explain the situation to [Joy Findley Clarke] and that she should act as his Litigation Friend."

53. On 9 March 2004 Dr H Leung of Lea Road Medical Practice Wolverhampton certified:

"that the above named [Lindsey Findley] is our patient and he is incapable of dealing with his affairs because of his mental disability. His substantial mental disability is likely to be permanent."

54. On 26 March 2004 Dr H Obi, of the same medical practice, confirmed:

"that it was over two years since Mr Findley's accident with a closed head injury. He has been rendered incapable of work or independent living. Mr Findley is also very vulnerable both from his diminished cognitive function and he is at high risk. His memory is also very poor. He does get aggressive from time to time because of this.

I have no hesitation in recommending Mrs Joy Findley Clarke be appointed as litigation friend for him." (bundle tab 2, pages 157F and 157G)

55. Following the conference with counsel Mr McMullan wrote to Mrs Findley Clarke, on 6 February 2004 (bundle tab 4, page 443). In that letter Mrs Findley Clarke was informed:

"You will note on the certificate of suitability that you are giving an undertaking to the Defendant that you will pay their costs in the event that any costs are ordered against Lindsey in the proceedings. At that point in the conference I advised you that you did not need to be concerned about this because Lindsey has a legal expenses insurance policy covering his case which was taken out with The Accident Group at the start of the claim. The insurance provides him with an indemnity of £50,000 against the other side's costs and his own disbursements, and which I believe should be sufficient to cover the costs and disbursements in this case, should there be any difficulty …

If the Defendant's costs and Linsdey's own disbursements exceeded the indemnity limit of £50,000, then you would be liable to pay the balance. However, as I have said, I do not at this stage foresee any problems and I believe that the indemnity limit should be more than sufficient to cover you."

Mrs Findley Clarke consented to act as Litigation Friend on 31 March 2004.

56. After Mrs Lindley Clarke had been appointed Litigation Friend, Mr McMullan explained that he did not get her to sign any retainer documents on the Claimant's behalf:

"because it is my understanding that Lindsey is, and always was my client, whilst I would take instructions from the Litigation Friend on his behalf."

57. With regard to the statement in the letter of 6 February 2004 to Mrs Findley Clarke that she would be liable to pay the balance of the Defendant's costs and the Claimant's own disbursements, if they exceeded the indemnity limit of £50,000 in the insurance policy, Mr McMullan stated that this was prospective advice. The costs were very low at that point. Liability had not been in dispute since 13 August 2002. Proceedings were commenced on 2 April 2004, and following the admission of liability judgment was entered against then first Defendant with damages to be assessed limited to 80% on 31 January 2005. Directions for the assessment of damages were given on 31 March 2005 and the final order by consent was dated 25 June 2007.

The Claimant's Capacity

58. In relation to capacity, Mr Mallalieu referred Mr McMullan to the Solicitors Code of Conduct 2007, which states in its guidance:

"If your client loses mental capacity after you have started to act, the law will automatically end the contractual relationship."

(Note 6(a)(ii) to Rule 2)

59. Mr McMullan was not aware that lack of capacity might terminate the contract. His understanding was that the firm had a binding CFA with the Claimant, and that the Litigation Friend would step into the Claimant's shoes and take over conduct of the litigation. Counsel had not said anything about the validity of the CFA once the Litigation Friend took over.

The Letter of 4 May 2006

60. After Joy Findley Clarke had agreed to become the Claimant's Litigation Friend in March 2004 Mr McMullan wrote to her, on 4 May 2006, stating that he was required by Law Society Regulations to advise her of any revision to the firm's terms of retainer and:

"in particular, our charge out rates.

My firm is of course instructed by you and your brother under a conditional fee agreement. Our hourly rates have however been updated in the past year and these are set out below. I am of course a consultant solicitor in practice with 15 years experience. The other terms and conditions remain as before as set out in the conditional fee agreement save as amended below if appropriate."

61. The letter indicated that most of the work would be carried out by Mr McMullan and his assistant. The hourly rates for various grades of fee earner were then set out:

"Partners, consultants and solicitors with over 8 years experience £250.

Solicitors and legal executives with over 4 years post qualification experience £195.

Other solicitors and legal executives and fee earners of equivalent experience £175.

Trainee solicitors, para-legals and fee earners of equivalent experience £130.

We will review the hourly rates each year and will notify you of the increased rates in writing …"

62. The rates charged in both the first and the second CFA had a maximum rate of £175 for partners, consultants and solicitors. Those agreements state:

"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."

63. Mr Mallalieu queried why there had been a 40% increase in rates without any reason being given. Mr McMullan said that this was his firm's standard client retainer letter. Mrs Findley Clarke had been asked to sign and return the letter but she did not do so. No copy of the letter was sent to the Claimant. The rates set out in the letter were the firm's standard rates. The rates were normally revised in January but this had not been done every year.
64. Both the first and the second CFA contain provisions for paying the firm "if we end this agreement". The firm were able to end the agreement if the client did not keep to the responsibilities set out in condition 2 of Schedule 2, or if the firm believed the Claimant was unlikely to win, in which case only the solicitors' disbursements would be payable, including counsel's fees. The firm could also end the agreement if the Claimant rejected advice about making a settlement with the Defendant, or if the Claimant did not pay the insurance premium when asked to do so. The letter written to Mrs Findley Clarke states:

"Termination

You may terminate your instructions to us in writing at any time but we will be entitled to keep all your papers and documents while there is money owing to us for charges and expenses.

In some circumstances you may consider we ought to stop acting for you, for example if you cannot give clear or proper instructions on how we are to proceed or if it is clear that you have lost confidence in how we are carrying out your work.

We may decide to stop acting for you only with good reason, for example, if you do not pay an interim bill or comply with our request for a payment on account. We must give you reasonable notice that we will stop acting for you.

If you or we decide that we will no longer act for you, you will pay our charges on an hourly basis and expenses as set out earlier."

John Hesketh

65. John Hesketh was an assistant solicitor with Lucas McMullan Jacobs, he was admitted on 15 August 2001 having previously been employed as a trainee solicitor by the firm. He left the practice in December 2002 to pursue his career elsewhere. He was given the case of Lindsey Findley as part of his workload. He stated:

"Mr Findley's domestic situation was also somewhat unusual (being a drug addict of no fixed abode at the time of the accident). I recall that it was not easy to get detailed instructions from him."

66. Following the judgment in English v Clipson Mr McMullan instructed the fee earners to contact all the TAG clients, give them the oral advice required under Regulation 4 of the CFA Regulations 2000, get them to re-sign the CFA agreement. Mr McMullan had prepared a specific set of papers for the client to sign:

"We were instructed not to carry out any further work on the files until such times as the clients had re-signed the CFAs because of the fear that the earlier CFA might not be enforceable."

67. In relation to taking instructions from the Claimant, Mr Hesketh stated:

"I recall speaking to the Claimant in this case on various issues and on various occasions. I have a hazy recollection of giving him the oral advice and of him having difficulty in comprehending the reason for re-signing the CFA. The Claimant had greater difficulty than most in comprehending legal issues and more time and care were given to him as a result … I am confident that I gave the requisite oral advice to the client during one of those telephone conversations. However it will be appreciated that this was some 6 years ago and for that reason my memory of events is not as precise as I would like it to be.

I would not have continued to work on the case, nor would James McMullan have permitted me to work on the case until the oral advice had been given over the telephone and re-signed CFA signed by the client and received by me. I was very well aware of the potential consequences of failing to do so."

68. In cross-examination Mr Hesketh described the Claimant as a "memorable client" both because of his personality and the difficulty in obtaining instructions. He said that it was difficult to get hold of the Claimant, who was not a sophisticated client. When advising him he had to use simple words to get the meaning across. Mr Hesketh thought that the Claimant understood "most of it". He had to be succinct and not go into too much detail.
69. Mr Hesketh recalled that there was a check-list, he assumed that the one in the bundle was the same as that which he had used. He did not recall seeing any check-list signed by the Claimant.
70. With regard to the pro forma documents prepared by Mr McMullan, these could be amended by the individual fee earners to fit the particular case.
71. When going through the requisite advice with the Claimant, he did not touch upon the question of the two CFAs existing in the alternative.
72. Mr Hesketh felt that when he spoke to the Claimant, that the Claimant did understand what he was saying. He was able to take instructions from him, and the Claimant was able to give details of the accident. Mr Hesketh spent a lot more time on the phone to him than he generally did with other clients.
73. Mr Hesketh felt he would have told the Claimant about the costs consequences of Part 36 offers, but could not remember what he told him about the position if the firm failed to recover costs from the other side.
74. With regard to the missing documents, Mr Hesketh's recollection was that the documents, once signed, would have been put in the back of the file. There would have been an attendance note and time recording. He could only assume that the documents were on the file in 2002 when he left the company.

Daniel Downes

75. Daniel Downes was an assistant solicitor with Lucas McMullan Jacobs, having joined the firm on 1 July 2002 as a para-legal. He entered into a training contract in June 2003, and qualified in January 2005. In July 2002 he was employed doing only personal injury work. All his case load consisted of claims referred to the firm under the TAG Scheme. Mr McMullan vetted the cases first, passing on those cases he thought were suitable for Mr Downes to handle.
76. There were regular meetings in the personal injury department to discuss topical issues. Following the judgment in English v Clipson there was great concern in the practice, and Mr McMullan gave instructions to all the fee earners in the personal injury department to get out each TAG file, contact the client and give him or her the oral advice required under the CFA Regulations 2000, and to follow that up by having them re-sign the CFA agreement. There was a training session, when Mr McMullan explained by reference to the CFA check-list, the advice that was required to be given to each client. He also prepared a standard letter to go out with the CFA papers, and the fee earners were instructed not to carry out any further work until such time as the client had been given the necessary oral advice and had re-signed the CFA.

SUBMISSIONS

77. Mr McMullan and Mr Hesketh gave their evidence truthfully and frankly, the evidence of Mr Downes is not controversial. The evidence does, however, raise a number of matters which must be taken into account in deciding the issues in this case. These include Mr McMullan's comments in his attendance note on 13 July 2001 to the effect that the Claimant did not understand what he was being told; the fact that the check-list dated and signed 20 July 2001 was in fact signed by the Claimant in January 2003; the fact that there are no papers relating to the second CFA available; and the fact that Mr McMullan specifically asked counsel to advise in respect of a litigation friend, from which it must be inferred that he was aware in February 2004 of the possible requirement for a litigation friend.

THE CONDITIONAL FEE AGREEMENT DATED 20 JULY 2001: ISSUES 1, 2 AND 3

78. Mr Mallalieu suggested that Mr McMullan had adopted the standard TAG procedure (as he was required to do) but that he had departed from it in respect of his own check-list and the giving of an oral explanation prior to the visit by the TAG representative. He suggested that the first time the Claimant saw the fact find and oral explanation sheet, which was said to provide the written explanation, was when the TAG representative visited him and obtained his signature.
79. Mr Mallalieu did not accept that a copy of the fact find and oral explanation sheet had been sent to the client, suggesting that there was no evidence to support that. However, Mr McMullan gave clear evidence to this effect (see paragraph 33 above). I do, therefore, accept that a copy of the fact find and oral explanation sheet was sent to the Claimant, together with the conditional fee check list. Mr Mallalieu's supplemental submission is that the fact find and oral explanation sheet does not provide the requisite written information. He argues that there is a substantial inconsistency between the advice apparently given by reference to the fact find and oral explanation sheet and that set out in the CFA. The fact find and oral explanation sheet, signed by the Claimant on 20 July 2001 (bundle tab 3, 353 ff), states, so far as relevant:

"8. You should also be aware that there are other methods of financing litigation. However for personal injury claims, legal aid is generally no longer available … you (sic) case does not appear to be a high cost case and further, your panel solicitor advises you against seeking legal aid support for the investigation of your case if he is willing under the terms of the Accident Group Scheme to carry out such an investigation for you without costs and if any disbursements are incurred during the course of that investigation, it is covered under the terms of your legal expenses insurance. It is also open to you to consider paying the panel solicitor's fees win or lose. You will appreciate of course, that as your panel solicitor is prepared to do this on a no win no fee basis, it would be inappropriate for you to accept that option.

9. Having regard to the circumstances of your accident and the value of your claim your panel solicitor believes that the method of financing your case which consists of a solicitor working on a "no win – no fee" basis under a conditional fee agreement and a legal expenses insurance policy is an important method of funding your case. In particular this is because the legal expenses insurance premium is insured if you lose your case, and secondly the policy covers all of your medical fees and other disbursements as well as your opponent's legal costs if you lose. Further, you will not be required to make any payments to the panel solicitor, The Accident Group, or to the legal expenses insurance providers during the handling of your case. The panel solicitors do not have an interest in The Accident Group or the legal expenses insurance providers. However the panel solicitors are members of The Accident Group's panel of solicitors."

80. The CFA itself, the relevant part of which I have set out at paragraphs 35 to 38 above, informs the client that the solicitors were unable to discuss other methods of financing the costs, because the Claimant had already "agreed to purchase a legal expenses insurance policy" and "had also agreed to fund the purchase of the legal expenses insurance … by a loan …" The CFA goes on to inform the Claimant that he is "contractually bound to purchase the legal expenses insurance policy" and it would therefore be inappropriate for the solicitor to discuss the suitability of the insurance product with the client, although he is entitled to obtain independent legal advice. In short, argues Mr Mallalieu, the client was told that he could not be given any of the advice or explanation he was entitled to. In fact the TAG insurance was not effected until 31 July 2001, eleven days after the CFA was signed by the Claimant. Mr Mallalieu relies on my decision in Richards v Davis, dated 25 November 2005, in which I found that the wording of the CFA (which was slightly different in that case) was no more than a device to get round the provisions of the Regulations.
81. Mr Mallalieu submits that in the absence of any evidence as to what took place when the TAG representative visited the Claimant, the court should conclude that the advice given was consistent with that set out in the CFA to which I have referred.
82. Mr Power relies upon the existence of the check list used by Mr McMullan which, he argues, covered the requirements of Regulation 4(2)(a)-(e). The Claimant was of no fixed abode at the time of his accident and was living rough. It was always extremely unlikely that he would have had insurance of any kind. Mr McMullan had asked the Claimant whether he had insurance, and was told quite emphatically that he had not. Mr McMullan also spoke to Mrs Findley Clarke to find out if the Claimant had insurance of any sort. He did not.
83. Mr Power suggests that the issue in July 2001 is the extent to which the Claimant's solicitor is under an obligation, not just to deliver advice but to ensure that it is being understood by the client. He suggests that the test is one of reasonableness in deciding how far the solicitor needs to go in getting the information across to the client. He suggests that there is a group of people who are slow witted or not interested in the advice given in such circumstances, but they are quite capable of giving instructions and do not need a Litigation Friend. Oral advice was given twice, once by Mr McMullan and once by Mr Hesketh. Mr McMullan said that he "did my best", Mr Hesketh said that he had to use simple words to get his meaning across. He thought that the Claimant had understood "most of it". There was no evidence that the TAG representative did anything other than what was required of her. Mr Power submits that the solicitor does not have to guarantee that the Claimant has understood, even if the Claimant had not understood the position during the initial telephone conversation of 13 July 2001, at the subsequent meeting, on 20 January 2003 (after both CFA1 and CFA2 had been signed) Mr McMullan was satisfied that the Claimant did understand.
84. The Claimant accepts that there is a duty on solicitors to do all that was reasonably necessary to make sure that the Claimant understood. Mr Mallalieu submits that the duty goes further and does not accept that the Solicitors did enough. It was clear to the Solicitors that the Claimant had not understood at the initial interview and that they had not done enough to get the meaning across. The answer was therefore to appoint a Litigation Friend at a much earlier date. He submitted that the Solicitors have not complied with their Regulation 4 duty, because they have not done all that was reasonably necessary to enable the client to understand the implications of entering into a CFA.
85. Mr Power submits that it is possible to distinguish Richard v Davis from this case, one of the reasons being that it is not authority for the general proposition that the mere inclusion of paragraphs (j), (e) and (f)(i) and Schedule 2 of the CFA is automatically fatal to the standard TAG CFA. He argues that it is inconceivable that, if the mere inclusion of those paragraphs rendered every TAG CFA unenforceable, the point would not have been made in the light of the scrutiny and the detailed and comprehensive judicial analysis to which the TAG Scheme has been subject.

Conclusion

86. The fact is that the so called compliance issues were never tested in The Accident Group Test Cases (see Richards v Davis paragraph 11). Had they been so tested the matter would no doubt have gone to the Court of Appeal, and a definitive decision obtained. In the event there have been a few isolated TAG cases, some of which have settled before hearing. Other examples are Richards v Davis, Booth v Greens Transport Ltd, 20 August 2007, which was my judgment when sitting as a Recorder, and this case. It is not known how many other TAG cases settled as a result of the mediated agreement, nor how many cases are outstanding which have never settled.
87. The real question is whether or not Mr McMullan's conditional fee check-list was sufficient, bearing in mind his evidence that the advice which he gave was more detailed than the topic set out in the check list, to comply with the requirements of Regulation 4. I accept Mr Power's submission that there is no real issue concerning compliance with Regulation 4(2)(a) or (b) (advice concerning the circumstance in which the client pays his own legal costs and when the client can seek assessment of those costs). Similarly Mr McMullan does appear to have made appropriate enquiries as to whether the proceedings were insured under an existing contract of insurance.
88. A difficulty arises with Clause 5 of the check-list "my solicitor has discussed with me and I have been advised of other methods of financing the case". This is directly contrary to what is said in the conditional fee agreement: "We were unable to discuss other methods of financing those costs …" A still greater difficulty is caused by Clause 6 of the check-list: "My solicitor has informed me why the insurance we have chosen is appropriate and the interest he has in recommending this policy of insurances that my solicitor is on the panel of The Accident Group Scheme". This again cuts across what is said in the CFA: "… we do not believe that it would be appropriate for us to advise you as to [the TAG policy's] suitability …"
89. Even if it is accepted, as I do, that the solicitors were under an obligation to use the TAG policy, this does not, in my judgment, meet the test laid down in Garrett v Halton Borough Council [2006] EWCA Civ 1017 at paragraph 94. The Solicitor's obligation in Regulation 4(2)(e)(ii) is to inform the client, if he recommends a particular insurance contract, "whether he has an interest in doing so". The obligation is not to inform the client whether he believes that he has an interest in doing so; it is to inform the client whether he has an interest in doing so in fact. This Regulation is concerned with client protection. The Court of appeal explained:

"97. … There was a close relationship between [the Solicitors (S)] and [the Claims Management Company (C)]. [S] were dependent on [C] for referrals of cases, although it is unclear to what extent. As Mr Morgan points out, cases are the lifeblood of solicitors. The profit generated by cases is likely to be of greater significance to solicitors than commissions paid on insurance premiums paid for ATEs in connection with CFAs. The indirect financial interest in maintaining a flow of work through membership of a panel of solicitors is greater than the direct financial interest in commissions paid for insurance premiums. The advice to use the [C] insurance product came in a CFA that it had apparently supplied to its panel solicitors and which bore its livery. …

99. The statement that [S] had no interest in the insurance premium "although we are on the [C] Panel" did not disclose to Ms Garrett that [S] had a financial interest in remaining on the panel which would be lost if she did not accept their recommendation that she enter into an ATE with NIG. She could not have known from what she was told that [S] were recommending the NIG policy because this was dictated by their financial interests.

100. She would not have understood the significance of [S] being on the [C] panel. As Mr Morgan suggested in argument, most laypersons would be likely to believe that membership of a panel was a mark of quality control. …

101. … In our judgment, by informing Ms Garrett that they were on the [C] panel, the [S] representative did not disclose the real financial interest they had in recommending the NIG policy."

90. There are distinct parallels in the present case. The Claimant was told that the interest which Mr McMullan had in recommending the policy of insurance was that he was on the panel of The Accident Group Scheme and that he was obliged to use the TAG insurance. In my judgment, even if the Claimant had been fully able to understand the explanation which was being given to him, he would have been left with the same impression as Ms Garrett.
91. The question of the Solicitor's interest has been further examined by the Court of Appeal in Tankard v John Fredricks Plastics Ltd & Other Cases [2008] EWCA Civ 1375. Sir Anthony Clarke MR, giving the judgment of the court, said:

"13. ... In the course of the argument Dyson LJ suggested that a test along the following lines would be appropriate. For the purposes of regulation 4, a solicitor has an interest if a reasonable person with knowledge of the relevant facts would think that the existence of the interest might affect the advice given by the solicitor to his client. We have considered the appropriate test in the light of the detailed submissions made to us and have concluded that such a test is appropriate because it is consistent with the language of regulation 4 construed with due regard to the legislative purpose, which is identified in Garrett as being that of protecting the solicitor's client. See also in this regard [90] of Hollins and [101] of Garrett.

14. As to language, regulation 4 is concerned with giving the client who is considering entering into a CFA sufficient information and advice to enable him to take a properly informed and considered decision. He can only do so if he is given information and advice which are not in any way affected by the solicitor's self-interest. The particular context of paragraph (e) relevant to the question whether or not to enter into a CFA is whether the solicitor considers a CFA is appropriate and, if so, whether he considers that a contract of ATE insurance is appropriate and, if so, whether he or she considers the particular contract which is available under the ALP Scheme is in the client's interest. As we see it, the purpose of the regulation is to ensure that the solicitor acts and gives advice independently of his own interest.

15. In our judgment, the test identified above satisfies that purpose because it ensures that any interest of the solicitor that might affect his or her advice is notified to his or her client. If a reasonable person with knowledge of the relevant facts would think that there might be such a risk, the client must be informed of the interest. If such a person would think that there was no such risk, we cannot think that the draftsman of the Regulations can have intended that the alleged interest should be communicated. The client would himself have no interest in being told about it. His or her only interest would be in being informed of matters which might affect the solicitor's advice or judgment in a manner adverse or potentially adverse to the client.

16. That approach is in our opinion consistent with the approach in Garrett. It is also entirely consistent with the natural meaning of the language used in paragraph (e) and has regard to the purpose of the Regulations. Nothing more is needed to protect the client."

92. With regard to disclosure of interest the Master of the Rolls said this:

"38. … As Mr Morgan points out, the purpose of regulation 4 is consumer protection: see Hollins at [25] ff. It must be construed in a way which gives adequate protection to the client. If all that the client is told is that the solicitor has an interest in the recommendation, then he is not much the wiser. The client needs to know more about the nature of the interest before being able to judge whether the solicitor has a motive for making his recommendation. The fact that the client can always ask more questions does not provide adequate consumer protection, because clients often do not ask questions. The purpose of the sub-paragraph is to put the client in a position where he can make an informed decision. ...

…

43. In approaching this issue, we bear in mind that the purpose of the Regulations is consumer protection. This means that in general terms they must be construed in a way which will promote, rather than detract from, such protection. It means in particular that regulation 4(1)(a) and 4(2)(e)(ii) must be construed in a way which will ensure that the solicitor discloses to the client the true nature of his interest in recommending the insurance so that the client can make the necessary informed decision. This entails explaining to the client the nature of the benefits to the solicitor in remaining on the ALP panel with sufficient clarity for the client to understand what they are and to be able to assess their significance.

44. In our judgment, the dicta at [103] of Garrett should not be followed. A solicitor who informs his client that he is recommending a policy because that is the only policy which he can recommend consistently with his membership of the panel tells the client nothing about the nature of the benefit that accrues to the solicitor through continuing membership of the panel. …

45. … On any view, the inclusion in the CFA of the confirmation that the solicitor has no interest in recommending the insurance means that there is no clear disclosure of the interest. In our view, the Regulations require clear disclosure of the interest. Anything less would mean that they fail in their objective of providing consumer protection."

93. In my judgment, applying the test suggested by Dyson LJ, a reasonable person would find the membership of a TAG panel and the obligation to use the TAG documentation and ATE policy constituted an interest which might affect the advice given by the solicitor. For the reasons which I have given, and, on the basis of what has been said by the Court of Appeal, I find that there has been a breach of Regulation 4(2)(d) and (e). The Claimant has been denied the opportunity to make an informed choice.

Materiality

94. Mr Power argues that if there was any breach of Regulation 4, in respect of the first CFA, it was not material. He reminded the court correctly that the Parliamentary purpose of the legislation was to enhance access to justice, not to impede it. He accepts that the purpose of the Regulations was the protection of the client, see Garrett v Halton Borough Council [2006] EWCA Civ 1017 at 101. He further accepts that the question whether there has been substantial compliance, or a material departure from what was required should be determined without regard to the actual consequences for the client.
95. Mr Power seeks to distinguish this case from the facts in Garrett, because: (i) Mr McMullan did inform the Claimant that his firm was obliged, by its membership of the TAG panel only to recommend the TAG policy, and (ii) the written explanation in the check-list, to the effect that Mr McMullan recommended the TAG policy because the firm was a TAG panel member, amounted to significant factual distinctions. I have, however, already found that the oral and written explanations as to the solicitors' interest in recommending the TAG policy were insufficient. Mr Power submits that once the decision is made, and the Claimant has contracted to purchase the insurance, the protection afforded by written details to the effect that the insurance was appropriate, or that the solicitor who recommended it may benefit from repeat referrals "is of little or no value". He accepts that the protection consists of having the information necessary to make an informed decision. Once the decision is made the same information would cease to be of importance. The client can no longer decide that he does not want the insurance.
96. I cannot accept those submissions which are all based on the premise that the oral and written explanations which have been given are in fact sufficient. Had they been, there would have been no breach under those heads of the Regulations. Both the CFA and the fact find and oral explanation sheet have been signed by the Claimant to say that the advice contained in those documents has been received. That advice is, however, inconsistent.
97. Mr Mallalieu relies on Hollins v Russell [2003] EWCA Civ 718 as clarified in Garrett, submitting that the failures which I have described are clearly material. In his submission "total non compliance" cannot amount to "substantial compliance".
98. I accept Mr Mallalieu's submissions and find that there has been a breach of Regulation 4(2)(d) and (e) and that there has been a materially adverse effect upon the protection afforded to the client.

THE CLAIMANT'S CAPACITY: ISSUES 4, 5, 6 AND 7

99. It is no part of Mr Mallalieu's case that the Claimant lacked capacity prior to February 2004. It was on 4 February 2004 that the conference with Counsel took place, at which Counsel advised that a Litigation Friend was required. Since Mr McMullan had specifically asked Counsel to advise on this topic, it can be said with confidence, that, as at that date, both Mr McMullan and Counsel were of the view that the Claimant required a Litigation Friend. For the purpose of this judgment, therefore, I take that date as the date upon which the legal representatives were aware that the Claimant lacked capacity. The doctor's letters of 9 and 26 March confirmed the position, and the Claimant's sister was appointed the Litigation Friend. Mr McMullan did not enter into a separate retainer with Mrs Findley-Clarke, but simply carried on acting (see paragraph 56 above).
100. Mr Mallalieu argues that the effect of a party to a contract for services losing capacity, in circumstances where the other party is clearly aware of that loss of capacity, is to end the contract (for further services) with effect from the date of the lack of capacity. Mr McMullan when cross-examined said he was not aware that lack of capacity might terminate the contract. He thought that the Litigation Friend would step into the Claimant's shoes and take over the conduct of the litigation. Mr Mallalieu relies on Yonge v Toynbee [1910] 1 QB 215 at 228 as authority for the proposition that the Claimant is no longer able to give instructions, and the contract is at that point frustrated. The contract having been frustrated, Mr Mallalieu accepts that the Litigation Friend has ability to contract on behalf of the Claimant, and could have entered into a new retainer with the solicitors.
101. Mr Mallalieu further relies on Treitel: Frustration and Force Majeure 2^nd Edition:

"4-018 Where the contract is one which would be discharged by the death of a party, it may likewise be discharged by that party's supervening incapacity … the relationship of principal and agent is terminated by the insanity of either party … [Drew v Nunn [1879] 4 QBD 661; Yonge v Toynbee [1910] 1 KB 215]."

In relation to agency and the general rule that a person without capacity cannot appoint an agent, Treitel states:

"4-020 … A similar rule has been applied in cases of the supervening insanity of the principal. This has been held to terminate the actual (though not the apparent) authority of the agent, at least where the principal was "so far afflicted with insanity as to be disabled from acting for himself" [Drew v Nunn at 666] or where the principal had "become so far insane as to have no mind": in such a case "perhaps he ought to be deemed dead for the purpose of contracting" [Drew v Nunn at 669; see also Yonge v Toynbee]. In all these statements it is the fact of the principal's insanity (actual or supervening) which is regarded as decisive …"

102. Mr Mallalieu goes on to submit that once the requirements of frustration are satisfied, the effect of the doctrine is to discharge the contract "forthwith without more and automatically" (see Treitel 15-002). Finally Mr Mallalieu points to 24.04 of the Guide to Professional Conduct of Solicitors 1999, which was current at the time of the Claimant's incapacity, which, in answer to the question "what do I do if my client loses capacity in the course of the retainer?" states:

"The retainer will be determined by operation of law. However, you should contact, eg, relatives, the Public Trust Office or the Official Solicitor so that the relatives or the relevant agency can take reasonable steps to protect the client's interests."

103. In relation to capacity Mr Power argues that whilst both The Guide to the Professional Conduct of Solicitors 1999 (at page 453) and The Solicitors Code of Conduct 2007 (rule 2, note 6(a)(iii)) state that a client's mental incapacity will automatically terminate a retainer with a solicitor, no authority is cited in either publication for that proposition. He submits that what is said in those Codes is an over-simplification, both of Yonge v Toynbee and the law relating to contract and mental incapacity. He relies on Chitty on Contracts 29^th Edition, chapter 8 – personal incapacity. He seeks to argue that the contract for legal services was a contract for necessaries, and accordingly binding on the Claimant. As to the meaning of necessaries, Chitty states:

"8-008 … the term is not confined to such matters only as are positively essential to the minor's personal subsistence or support; it is also employed to denote articles purchased for real use so long as they are not merely ornamental, or are used as matters of comfort or convenience only, and it is a relative term to be construed with reference to the minor's age and station in life. The burden of showing that the goods supplied are necessary is always on the supplier …

…

8-013 Necessary services. Services as well as goods may be necessaries. So, for example, a contract for legal [De Stacpoole v De Stacpoole [1887] 37 Ch D 139] or medical services may be a contract for necessaries … Unlike the uncertain position in respect of contracts to supply necessary goods it is clear that executory contracts for necessary services may be enforced against a minor, at least in the context of apprenticeship or contracts for education. …

…

8-070 In the case of contracts other than for necessaries, the general rule is that a mentally disordered person is bound by his contract unless he can show that owing to his mental condition he did not understand what he was doing, and further that the other party was aware of this incapacity. But if these two conditions are satisfied, the contract is voidable at his option. This rule was laid down in Imperial Loan Co Ltd v Stone [1892] 1 QB 599, 601 where Lord Esher MR said:

"When a person enters into a contract and afterwards alleges that he was so insane at the time that he did not know what he was doing, and proves the allegation, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about.""

104. The authority cited for that proposition Imperial Loan Co Ltd v Stone, does not appear to have been cited in Yonge v Toynbee. Mr Power argues that Mr McMullan did not know that the Claimant lacked capacity prior to 4 February 2004.
105. Mr Power's position is that the retainer between the Claimant and his solicitors was a contract for necessary services and was binding on the Claimant regardless of any mental incapacity on his part. Even if the contract was not a contract for necessaries, the retainer would be voidable at the option of the Claimant, but the Litigation Friend, Mrs Findley-Clarke, had ratified or affirmed the retainer as being in the Claimant's best interests.
106. Mr Power then referred to Halsbury's Laws Volume 44(1) Solicitor and Client at paragraph 107:

"Retainer by mentally disordered persons

A person suffering from a mental disorder which prevents him from understanding what he is doing cannot enter into a contract or appoint an agent, and therefore cannot give a retainer to a solicitor. However, if he purports to do so he may incur quasi contractual obligations to the solicitor (ie, in so far as the retainer may be shown to be a contract for "necessaries" he may be liable to pay the solicitor) and in any case, if it thinks fit, the Court of Protection may validate the contract of retainer.

The authority of a solicitor under a retainer given by a client before becoming mentally disordered ceases as soon as the client becomes mentally disordered (see Yonge v Toynbee) and it is immaterial whether or not the solicitor was aware of the incapacity (see Yonge v Toynbee)."

Mr Mallalieu accepts what is said in the paragraph which I have quoted, but disputes that this is a contract for necessaries.

107. In relation to capacity, Mr Power relies on Halsbury's Laws Volume 30 Mental Health, at paragraph 1390:

"Contractual capacity

The test of contractual capacity is whether or not the person was capable of understanding the nature of the contract he was entering into. This depends upon whether there was understanding of the particular transaction; the degree of capacity required will therefore differ according to the nature of the transaction. Furthermore, contracts made during a lucid interval by a person who is mentally incapable of contracting at other times are valid, even if he is liable to be detained at the time. Hence, mental incapacity in relation to contract may be permanent or temporary, general or in relation only to some transactions, or in relation to some transactions some of the time."

108. Mr Power also seeks support from the Practice Direction, issued by the Master of the Court of Protection on 9 August 1995, which states:

"… where a receiver has been appointed, the solicitor acting in the matter is acting for the patient and not for the receiver …

A further difficulty may arise as a result of the case of Yonge v Toynbee … nevertheless incapacitated people may need solicitors to act for them and them alone.

Assuming that a patient or donor is within the jurisdiction of the Court of Protection, the solicitor's authority to act for him can be expressly confirmed by the Court of Protection. Solicitors are also entitled to look upon themselves as acting for a patient or donor and not for the person who has given them instructions (if that is not the patient or donor) from the time that an application which is in order is received by the Court of Protection or the Public Trust Office …"

109. Mr Power submits that a Litigation Friend, as an officer of the court, has the same power to confirm a contract as a court does. Mr Power seeks to distinguish this case from Yonge v Toynbee, in that that case was an action for defamation which probably would not have qualified as "necessary" and would therefore have been voidable at the option of the client. In this case, however, he submits that it was necessary for the Claimant to recover damages for his injury for his own welfare, and he needed a solicitor to enable him to do so. Mr Power seeks to support this submission, by reference to Section 3 of the Sale of Goods Act 1979:

"3. Capacity to buy and sell –

(1) Capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property.

(2) Where necessaries are sold and delivered to a person, who, by reason of mental incapacity or drunkenness, is incompetent to contract he must pay a reasonable price for them.

(3) In sub-section (2) above "necessaries" means goods suitable to the condition in life of the person concerned and to his actual requirements at the time of the sale and delivery."

110. Mr Power submits that the court has to consider whether the solicitors did all that was reasonable to ensure that the Claimant understood. The court does not need to consider whether he did in fact understand. The Claimant cannot set up his mental state as a defence against having to pay his own solicitors. The question in Yonge v Toynbee was the solicitor's authority to act. There was no consideration of the principles in Imperial Loan Co. In that case, which he submits is not authority for the proposition that solicitors could not recover from their client, the solicitors could enforce the retainer against the client if the legal services were necessaries. Actions for defamation may not be regarded as necessary, and therefore the contract may have been voidable.
111. Mr Power submits that a proper analysis of Drew v Nunn, The Imperial Loan Co v Stone and Yonge v Toynbee accords with the analysis set out in paragraphs 8-070 ff of Chitty on Contracts 29^th Edition.
112. Mr Power also seeks to rely on what was said by Bowen LJ in Rhodes v Swithenbank [1992] 22 QBD 577 at 579:

"The only reason that the next friend of an infant is entitled to bind the infant in matters connected with the cause is that he is the officer of the court to take all measures for the benefit of the infant in the litigation in which he appears as next friend."

113. Mr Power argues that Mrs Findley-Clarke is in the same position as a next friend, and therefore had the authority of the court to bind the Claimant in all measures for the benefit of the Claimant in this litigation. This includes the decision to maintain the Claimant's retainer with the Solicitors. It can be implied that she did so from her conduct in giving instruction to the Solicitors, in the knowledge and on the understanding that the Claimant had signed a CFA with the solicitors. Where the Litigation Friend is acting for a person under a disability, both the Litigation Friend and the person under a disability may be clients of the solicitor. In support of this proposition Mr Power relies on the Guide to Professional Conduct of Solicitors 1999 at page 246:

"12.06 Who is my client?

…

(2) A Litigation Friend (formerly a Guardian ad Litem) who instructs a solicitor for the benefit of a minor is normally a client, as is the minor …"

114. Mr Power suggests that the retainer may be with the Litigation Friend, or, in the particular circumstances of this case, with the Claimant who lacks capacity.
115. Although Mrs Findley-Clarke did not sign the letter of 4 May 2006, Mr Power suggests that this is evidence supporting his contention that Mrs Findley-Clarke accepted, by her conduct, that the CFA between the Solicitors and the Claimant was appropriate. The letter states:

"Your continued instructions in this matter will amount to acceptance of these terms and conditions of business."

116. The solicitors do not contend that the letter itself forms a CFA or a retainer. They rely on the conduct of Mrs Findley-Clarke as ratifying the second CFA.
117. Finally, Mr Power referred to Section 96 of the Mental Health Act 1983, which provides:

"(1) … the Judge shall have the power to make such orders and give such directions and authorities as he thinks fit for the purposes of that section and in particular may for those purposes make orders or give directions or authorities for -

…

(h) the carrying out of any contract entered into by the patient …"

He submits that since the Litigation Friend is an officer of the court, she was imbued with the court's authority to do all that was necessary for the benefit of the Claimant in the litigation including the same powers as the Judge to authorise the carrying out of any contract entered into by the patient.

118. Mr Mallalieu does not dispute that following Imperial Loan Co, if a contract is entered into, and one party at the time lacks capacity, and the other party knew, then the agreement is voidable at the instance of the incapacitated person. All the authorities support this. The real issue is whether, on its face, a contract is entered into, and a person suffers supervening incapacity. What is the effect of that? He argues that the contract is frustrated because the Claimant cannot give instructions, (see Yonge v Toynbee). He argues that "necessaries" deals with whether the contract was properly formed, not the effect of subsequent lack of capacity.
119. Mr Mallalieu draws the court's attention to Section 1(3) of the Law Reform (Frustrated Contracts) Act 1943, to the effect that if the contract between the Claimant and the Solicitors is terminated by the loss of capacity of the Claimant, then the Claimant may have a liability to his Solicitors for the period up to the frustration for reasonable costs relating to the value of the benefit received by virtue of this provision. Mr Mallalieu does not argue for a date earlier than 4 February 2004, but points out that this liability is subject to his point that the CFA is unenforceable in any event.
120. Mr Mallalieu argues that although Chitty says legal services may amount to "necessaries", De Stacpool is not authority for that proposition. He submits that the parties did not regard the CFA as a contract for necessaries. He says that this would give rise to bad practice and would enable lawyers to sue their clients for their costs. In any event, whatever the nature of the contract, it was, he submits, determined by the Claimant's supervening incapacity. It was therefore necessary for there to be a new agreement with a capable person, ie, the Litigation Friend.
121. With regard to Mr Power's suggestion that the Mental Health Act gives the Litigation Friend power to validate retrospectively a contract, this is misconceived, since Section 96 of the Act gives that power to a Judge of the Court of Protection. I agree. That part of the 1983 Act deals with the management of property and affairs of patients by the Court of Protection. To the extent that Mrs Findley-Clarke may be an officer of the court by virtue of being the Claimant's Litigation Friend, that is only in respect of the proceedings in the Queen's Bench Division in this action.

Conclusions

122. For the reasons given above I find that the CFA with the Claimant came to an end as a result of his lack of capacity on 4 February 2004. Mr Mallalieu argues that where a party has no capacity to contract at the outset, capacity may be attained at a later stage, and a party may ratify the earlier contract. He accepts that a contract for necessaries may be enforceable in such circumstances, despite the lack of capacity. In this case, however, he submits, and I accept, the matter turns on what happens when a party with capacity has entered into a contract which provides for continuing mutual obligations, but then that party loses capacity to manage his own affairs. This is a situation covered by both Yonge v Toynbee and Drew v Nunn, and which is spelt out by the Law Society in its guidance. I find, therefore, that as from 4 February 2004 the Claimant was no longer able to give instructions, and the contract was at that point frustrated. The question whether the legal services amount to "necessaries" cannot in my judgment save the contract.
123. The question then arises whether and to what extent the Litigation Friend can ratify or adopt the retainer. The simple and most obvious solution, which was not adopted, would have been to enter into a new CFA with the Litigation Friend. This could perhaps even have been made retrospective. An additional difficulty, as at February 2004, was that TAG had already gone into administration. There is no evidence as to whether this fact had any bearing on the Solicitor's failure to enter into a new CFA with the Litigation Friend.
124. Mr Mallalieu goes so far as to accept that if there was an implied retainer with the Litigation Friend by virtue of her conduct, any such retainer could at most only have been on the same terms as those agreed to by the Claimant. It seems to me that that must be the correct approach, since the terms of the implied retainer would then represent the obvious but unexpressed intention of the parties, see Hamlyn & Co v Wood [1891] 2 QB 488, 494.
125. It may well be that Mrs Findley-Clarke thought (she has not given evidence) that she was bound by the same terms as those in the CFA entered into by the Claimant. The letter of 4 May 2006 makes it clear that the same terms apply (apart from a change in hourly rates and some additional matters). Mr Mallalieu submits that any implied retainer would have had to comply, at the time it was entered into, with the requirements of Section 58 of the Courts and Legal Services Act 1990, and with the Conditional Fee Agreement Regulations 2000. There is, however, no written retainer with the Litigation Friend, she did not sign the letter of 4 May 2006, neither is there any evidence of compliance with the Regulations unless it can be said that the explanation given on 20 January 2003, when Mr McMullan visited Wolverhampton, could amount to sufficient oral explanation. The documents relied on by Mr McMullan as the written explanation were produced on that day and a copy was signed by the Claimant. Mr McMullan stated that neither the Claimant nor his sister had any questions about the CFA and were satisfied with it. Regulation 4 of the 2000 Regulations does not impose any particular time at which the necessary information must be given, merely stating:

"Before a conditional fee agreement is made the legal representative must …"

126. Regulation 5(1) of the 2000 Regulations provides:

"A conditional fee agreement must be signed by the client and the legal representative."

127. The second CFA was signed by the client and the legal representative. There is no requirement in the Regulations for a Litigation Friend subsequently purporting to ratify such an agreement to also have to sign. The difficulty which arises, however, is that the agreement with the Claimant had come to an end because of his lack of capacity. It was necessary for the Litigation Friend to enter into a new CFA with the solicitors. As things stand at the moment there is no need for a CFA to be signed by the client. As at 4 May 2004 the CFA Regulations 2000 did require such a signature. Mr Mallalieu's submission that any implied retainer would have to comply with the requirements of the 1990 Act and the 2000 Regulations is correct.
128. If I were dealing with a situation where the retainer between solicitor and client was not a CFA, it would be entirely possible for the Litigation Friend to ratify that retainer by her conduct (see Blyth v Fladgate [1891] 1 Ch 337). In Adams v London Improved Motor Co Builders Ltd [1921] 1 KB 495 Lord Justice Bankes stated:

"The principle upon which costs as between party and party are allowed is that the costs are awarded to the person claiming them as an indemnity. That being the principle, it follows that anyone who is not in a position to claim to be indemnified is not entitled to an order for party and party costs. It is said here that the plaintiff was not in a position to claim an indemnity, for two reasons, as I understand: one is that the firm who purported to act as his solicitors were not his solicitors at all; that they were the solicitors for the union, and their only instructions were to act as solicitors for the union. The other is that, assuming the union instructed the solicitors to act as solicitors for the plaintiff, yet it was upon the terms that the solicitors should look solely to the union, and not to the plaintiff for payment of their costs. …

…

When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent, it seems to me that he became liable to the solicitors for costs …"

129. Lord Justice Atkin said:

"To constitute a retainer there need not be an express agreement in writing with a solicitor to employ him. In all such cases it is sufficient to show that the agent, whether he is a professional man or whatever his employment may be, was in fact employed by the principal. In this case it appears to me from the admitted facts that there is only one inference possible – namely, that the plaintiff did in fact employ the solicitors at his solicitors in the action … He knew throughout the proceedings that they were purporting to act as his solicitors. He was made acquainted with the proceedings at every stage …"

130. On the facts of this case, I conclude that Mrs Findley-Clarke retained the Solicitors on the written terms of the second CFA. As such there is no difficulty in finding that Mrs Findley-Clarke was the client of the Solicitors and that she was liable to them for their costs.
131. I am satisfied from the conduct of Mrs Findley-Clarke that she had accepted what the Solicitors had told her in the letter of 6 February 2004. I find, therefore, that Mrs Findley-Clarke instructed the Solicitors on the same terms as the second CFA. This, of course, does not answer the question whether or not CFA2 was enforceable. This is dealt with below under Issues 10 and 11.

THE LETTER OF 4 MAY 2006: ISSUES 8 AND 9

132. Given my finding that the Litigation Friend ratified the second CFA, the Defendant's primary case, that there cannot be a variation of any retainer with the Claimant since he did not have capacity to enter into such a variation, goes. Mr Mallalieu, therefore, relies on the fact that the hourly rates set out in the letter of 4 May 2006 are inconsistent with the terms of the CFA concerning increase in those hourly rates, where the Claimant was clearly told:

"We will not increase the rate by more than the rise in the retail prices index and will notify you of any increase in writing."

133. The top rate set out in both the first and the second CFA was £175 per hour. Both parties had calculated the increase in the RPI up to May 2006, the Claimant calculating that the appropriate figure was £199 per hour, and the Defendant £196 per hour. It would be a matter for the Costs Judge on detailed assessment to decide exactly what hourly rate to allow, but given the finding that the Litigation Friend has ratified the second CFA the term which I have quoted above would clearly apply.
134. Mr Mallalieu argues that, at most, the letter can only amount to a unilateral attempt to vary the contract which is unsupported by any consideration flowing from the Claimant's Solicitor. He argues that the Claimant cannot be bound to such a variation and is not liable for any increase in the hourly rates exceeding the RPI which had been notified to him in writing. Mr Power says no more than that the Litigation Friend could have insisted on limiting the increase to the RPI figure. In those circumstances Mr Mallalieu's submission appears to be incontrovertible and I accept it.
135. Mr Mallalieu argues that if the Claimant is putting forward the letter, which was, at the time it was sent, the firm's standard retainer letter, as in some way altering the terms of the CFA, this is an attempt at a unilateral variation by the Solicitor without any consideration flowing. It could not therefore bind the Claimant. The Claimant does not argue that this letter is either a retainer letter or a CFA. It was never signed by Mrs Findley-Clarke. It follows, therefore, that the terms which apply to this retainer are those set out in the second CFA (provided it is enforceable).

Conclusion

136. In my judgment, provided that the second CFA is enforceable, the only effect of the letter of 4 May 2006 would be to increase the hourly rates in accordance with the RPI from 4 May 2006.

THE SECOND CFA: ISSUES 10 AND 11

137. For the avoidance of doubt I accept that the Claimant signed a second CFA some time between 1 September 2002 and 4 December 2002. I further accept that the CFA was in the same form as that exhibited in the case of Mr Hull and that the other documents involved (the letter enclosing "another CFA and client care letter" and the CFA check-list) were also sent to the Claimant. The CFA was not intended to be retrospective. Mr Power accepts that if the first CFA is unenforceable any costs recoverable under it would be lost.
138. Mr Mallalieu's position is that there cannot be two retainers, and therefore the first CFA must have come to an end when the second CFA was signed. The first CFA contained no provision as to costs if the agreement was terminated by the Solicitors for their own reasons.
139. Mr Power's position is that if the first CFA is enforceable, the second CFA is of no effect and the parties respective obligations continued unaltered. The signing of the second CFA would not have altered the party's obligations at all under the first CFA, and furthermore there would have been no consideration for the second CFA. If the first CFA is unenforceable by either party Mr Power submits there is nothing wrong with entering into a second CFA. In relation to CFA2 Mr Power relies on paragraphs 8 and 9 of the fact find and oral explanation sheet and paragraph 5 of the check-list.
140. If the first CFA was enforceable the question of consideration for the second CFA would arise. Mr Mallalieu argues that a promise by a party to perform its existing obligations is sufficient consideration. Mr Power argues that there needs to be an additional factor in order to establish consideration, but he found himself arguing this as part of his submission that the second CFA did not terminate the first. The matter is, in my view, put beyond doubt by the decision in Williams v Roffey Brothers and Nicholls (Contractors) Ltd [1991] 1 QB 1, where the court stated:

"(i) if A has entered into a contract with B to do work for, or to supply goods or service to, B in return for payment by B; and

(ii) at some stage before A has completely performed his obligation under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and

(iii) B thereupon promises A an additional payment in return for A's promise to perform his contractual obligations on time; and

(iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a dis-benefit; and

(v) B's promise is not given as a result of economic duress on the part of A; then

(vi) the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding."

141. The judgment in English v Clipson had raised a doubt in the minds of claimant's solicitors as to the validity of CFAs entered into where the required information had been given by a TAG representative. If that argument was right there was a real danger that the first CFA would be unenforceable. Leaving aside for the moment whether the second CFA complied with the requirements of the CFA Regulations 2000, the Claimant agreed to enter into a second CFA on the same terms as the first in return for the Solicitor's promise to continue acting on his behalf.
142. The court in Williams v Roffey also stated:

"consideration there still must be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect [s] the true intention of the parties."

143. The bargaining powers of the parties in this case are certainly unequal, but whilst I accept Mr Mallalieu's argument that there was consideration for the second CFA, I reject his submission that it was not their joint intention that the agreement should take effect in accordance with its terms.
144. In any event if I am right in my finding that the first CFA is unenforceable, there is clearly consideration for the second CFA.
145. I find that the mere signing of the second CFA does not of itself terminate the first CFA. There seems no reason why the Solicitors should not take the sensible step, being aware of the judgment in English v Clipson, of entering into a second agreement as a safety measure against the possibility that the first agreement might be found to be unenforceable (as indeed it has been).

Does the Second CFA Comply with the Regulations?

146. Having decided that the second CFA was entered into by the Claimant, and that there was consideration for the agreement, whether the first CFA was enforceable or not, the question then arises whether the solicitors have done enough to show compliance with Regulation 4. Unfortunately the relevant papers are no longer available, and there is no record of what was said. Mr Hesketh accepted that he had given no explanation of the effect of the second CFA on the first CFA. He accepted that he was unlikely to have touched upon this, either orally or in writing.
147. With regard to the obligation under Regulation 4(2)(d) Mr Power submits that there was at the time of the second CFA already a binding contract of ATE insurance. The contract of insurance was unaffected by any defect in the first CFA. The insurance was incepted on or about 31 July 2001, so that the assertions at paragraphs (j), (e) and (f)(i) and Schedule 2 of the CFA to the effect that the Claimant was a party to a binding contract of insurance were now true. Mr Power therefore argues that the Solicitors were therefore not then under the obligations imposed by Regulation 4(2)(e)(i) or (ii). The evidence is that advice regarding insurance was given, in accordance with Point 6 of the check-list.
148. Mr Mallalieu argues that there was no attempt to cure the failure to disclose the interest in that prior recommendation of the TAG policy, when the second CFA was entered into. He argues that it was vital that any defects in the advice that should have been given in the first place, were rectified. He relies on the judgment of Waller LJ at paragraph 61 to 63 of Jones v Wrexham BC [2007] EWCA Civ 1356 to the effect that Regulation 4(2)(c)(d) and (e) apply whether or not there was pre-existing insurance. He argues that the Claimant was not in a position to make an informed choice.
149. Waller LJ said this:

"62. I would reject [the submission that Regulation 4(2)(e) only applies where the legal representative is dealing with the situation where there is not already existing insurance] for the simple reason that it cannot have been intended that the solicitor should not be obliged to consider whether the insurance was one that it was appropriate to use. In my view there was no reason why (c), (d) and (e) [of Regulation 4(2)] should not apply cumulatively, whether or not insurance is in place. Accordingly, I would reject Mr Bacon's submission on this aspect."

150. Mr Power sets out in his skeleton the argument that the judgment of Waller LJ was obiter, and is not binding, and is furthermore wrong for the following reasons:

"61. Read as a whole Regulation 4 provides a logical progression through the steps necessary to ensure that a client is properly informed about a range of matters before he signs up for a CFA or associated ATE policy. That much is obvious. It is submitted that (c) to (e) require a solicitor to:

(i) check whether there is pre-existing insurance;

(ii) if not, to advise the client what methods are available for ensuring that he is not exposed to an adverse costs order;

(iii) if the solicitor recommends a particular method or policy of insurance, the solicitor has to disclose his reasons and his interest.

62. If (c) – (e) are read as if they apply when there is pre- existing insurance, there are bizarre and irrational combinations of obligations:

(i) the solicitor must advise orally if he considers that there is pre-existing insurance, but he must advise orally and in writing if he considers that insurance is appropriate;

(ii) notwithstanding that there is pre-existing insurance, the solicitor must advise the client if there are other methods of financing an adverse costs order, even though it would or might be improper to recommend an alternative;

(iii) a solicitor who happens to have an interest in a pre-existing ATE insurance policy must disclose that interest orally and in writing, whereas a solicitor with pre-existing BTE insurance is under no such obligation …

The passage … at 143 (of Hollins v Russell …) makes it plain that the purpose of Regulation 4(2)(e)(ii) was to protect a client by ensuring that he had the information necessary to make an informed decision. …

The decision faced by the client is whether or not to purchase insurance recommended by a solicitor. The only option open to a client who already has pre-existing ATE insurance is to instruct another solicitor who may or may not have an interest in the insurance policy. It is submitted that that would not be a sensible outcome and does not reflect the intention of Parliament.

(iv) … It is submitted that if Regulations 4(c) – (e) are read as if they apply in situations where there is pre-existing insurance, they have the same draconian effect on solicitors [as that described in Garrett at paragraph 92] but provide no additional protection to clients. That is not consistent with enhancing access to justice, but it is submitted, serves to impede it."

151. He submits that at paragraphs 60 to 62 of Jones Waller LJ is contravening the intention of Parliament.

Conclusion

152. The second CFA suffers from many of the same defects as the first CFA. I accept that Mr Hesketh did discuss with the Claimant the matters set out in the check list. The inconsistency with the TAG CFA: "we are unable to discuss other methods of financing those costs …" and "… we do not believe that it would be appropriate for us to advise you as to [the TAG policy's] suitability …" have now become understandable statements because of the existence of the loan agreement and TAG policy. The fact remains, however, that the Claimant has never been given the explanation to which he is entitled under Regulation 4(2)(e), and in particular in respect of the solicitor's interest.
153. Although I accept that Waller LJ was speaking obiter at paragraphs 59 to 66 of Jones v Wrexham BC, I am not persuaded that he was wrong in what he said. It cannot, in my judgment, be right for solicitors to lead a client into an agreement, in which he is not allowed an informed choice in respect of methods of financing the litigation, and then sometime later lead the client into a second agreement and say, in effect: "We do not need to give you the information required by the Regulation, because you already have an adequate policy of insurance." Accordingly, I find that there has been a breach of Regulation 4(2)(d) and (e) in respect of the second CFA.

Materiality

154. Mr Power argues that if there is a breach it is not material. He argues that the purpose of having information in writing about the solicitor's interest in the TAG policy was to ensure that the Claimant had sufficient information to enable him to make an informed choice about whether or not to proceed with the purchase of the TAG policy at the time the insurance was entered into. Once there was a concluded contract of insurance, that information was of no value and any failure to provide it is not material.
155. The question to be asked is:

"Has the particular departure from the Regulation had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?"

As Brooke LJ said in Hollins v Russell at 144:

"The mischief which this Regulation was introduced to remedy was the risk that the clients legal representative might induce the client to enter into insurance arrangements in which he had an interest."

156. That mischief had already taken place in relation to the first CFA. Although the Claimant was entitled to have a proper explanation in relation to the insurance and the Solicitor's interest in recommending it, the fact that he did not get it does not, in my judgment, in relation to the second CFA have a materially adverse effect on the protection afforded to the client, who had in place an existing policy of insurance for which he was, and is, still liable to pay the premium. So far as the administration of justice is concerned, the Solicitors were faced with a difficult client and became involved with TAG, which was the subject of constant challenges in the courts, before going into administration. The Solicitors sensibly attempted to overcome their perceived difficulties by entering into a second CFA, and eventually found themselves unsupported by TAG, which had ceased to exist. Nonetheless, they persevered with the case and obtained a good settlement for the Claimant. In those circumstances I cannot say that there has been any materially adverse effect on the administration of justice.
157. I have already decided that Mrs Findley-Clarke entered into an implied retainer with the Solicitors on the same terms as the second CFA. She did this in February 2004. That retainer, however, being on a conditional fee basis, has to be in writing and signed by Mrs Findley Clarke. The CFA was in writing at the time it was signed by the Claimant, and Mrs Findley-Clarke had received and understood the oral and written explanations in respect of it on 20 January 2003. By February 2004 the ATE insurance had already been in place for some time, and the Solicitors no longer had any discloseable interest since TAG had gone into administration. They were receiving no more referrals from that company. The only defect in the CFA between the Solicitors and Mrs Findley-Clarke is, in my judgment, the fact that it was not signed.
158. In his powerful dissenting judgment in Crane v Cannons Leisure [2007] EWCA Civ 1352, Lord Justice Maurice Kay indicated that he would have upheld the Master's decision to treat a costs draftsman's fee as a disbursement, and not allow a success fee in respect of it. He continued:

"28. … Although one is construing an agreement between solicitor and client, one is doing so in circumstances which will usually determine the liability of a person who is not party to the agreement. Whilst I accept the policy rationale of success fees, I consider it incumbent upon the court to approach the construction of the solicitor-client agreement in a way which does not operate unjustly on the ultimate paying party. …

29. I appreciate that this conclusion may seem anomalous and adventitious. The paying party has no control over whether the solicitor engages an independent costs consultant or carries out the work in-house, in which latter case the success fee would be payable. On the other hand, the solicitor may elect to instruct specialist costs counsel (for such people exist) on the assessment and in that case counsel's fee would be a disbursement and no success fee would become payable upon it, unless counsel had his own CFA. The anomalies are not all one way. For my part, I prefer an anomalous conclusion to an unjust one."

159. In my judgment it would certainly be unjust if these Solicitors were deprived of their reasonable costs because of the lack of signature of the second CFA by Mrs Findley-Clarke. That breach of the Regulations does not have a materially adverse effect on the protection afforded to her as a client, nor upon the administration of justice. I should regard it as adversely affecting the administration of justice if the Defendant in these proceedings was able to walk away without having to pay any costs to the Claimant's Solicitors.

THE INDEMNITY PRINCIPLE AND THE LEI POLICY: ISSUE 12 AND ISSUE 13

160. Issue 12 raises the question whether the Claimant's liability for his own disbursements was limited by reference to the extent of his legal expenses insurance cover and his potential liability for adverse costs. The implication being that, if the liability was so limited, the operation of the indemnity principle would mean that the Defendant would not be liable for any more than the Claimant. Mr Mallalieu argues that it was implicit from the terms of the insurance policy that the disbursements would not exceed £50,000.
161. In the client care letter dated 18 July 2001 the Claimant was told:

"… The policy provides you with legal expenses insurance (to a maximum of £50,000) for the following:-

? own disbursements and counsel's fees …

? your opponent's costs …

? the policy premium and any applicable loan interest in respect thereof …"

162. At condition 5 of the CFA the Claimant is informed:

"If you lose, you do not have to pay any of our basic charges or success fee. You do have to pay:

? us for our disbursements

? your opponent's legal charges and disbursements.

As you are insured against payment of these amounts by your insurance policy we will make a claim on your behalf and receive any resulting payment in your name. We will give you a statement of account for all money received and paid out."

163. Paragraph I of the CFA informs the client:

"The effect of the policy is that if you lose your case, the policy will cover our disbursements and your opponent's costs and disbursements. The maximum cover is £50,000. We shall attempt to recover the premium from you opponent if you win your case, but the court may disallow it in whole or in part. In such circumstances the loan for the policy premium and any interest and charges incurred by you in the purchase of the policy will be deducted from your damages (compensation). In any event, the court will not allow you to recover interest on any loan taken out to purchase the policy even if you win your case. Such interest will be deducted from your compensation if you win. If you lose your case then any loan (including interest) taken out to purchase the premium for the policy is covered by the policy and you will not be called upon to pay the same."

164. Mr Mallalieu's point is that there is no evidence that the Claimant was informed at any stage of his potential costs exposure (in excess of £50,000) either in relation to his own costs or to the other side's costs. In short there is no evidence to suggest that the true nature of his potential liability was ever explained to him. Thus, Mr Mallalieu argues that neither the CFA nor the client care letter gave the Claimant a proper explanation of the circumstances in which he might become personally liable. He submits that any reasonable client would, in these circumstances, be left with the entirely mistaken understanding of the extent of his liability for disbursements, or of his potential liability. Given that the Claimant's own disbursements, including VAT, amount to £112,583.35, Mr Mallalieu argues that there has been a breach of Regulations 2(1)(b) and/or 4(2)(a) and that the CFA is, therefore, unenforceable.
165. In the alternative, he argues that a reasonable claimant would have understood that he faced no significant personal liability for disbursements, other than what would be covered by his insurance policy. Mr Mallalieu suggests, therefore, that as between the client and his solicitor, the Claimant's liability for his own disbursements was capped at a maximum of £50,000, a figure which could not be exceeded unless and until the Claimant's Solicitor advised him that this was to be exceeded, and the Claimant agreed.
166. Mr Mallalieu does not argue for a cap lower than £50,000, in spite of the fact that the insurance was intended to cover adverse costs, as well as own disbursements. His position is that any claim for disbursements above £50,000 is a claim for sums for which the Claimant had no personal liability, and is a breach of the indemnity principle.
167. Mr Power for his part argues that at the time the contract of insurance was entered into, Mr McMullan considered that the insurance cover of £50,000 was reasonable. He says that there is no evidence that, either at that time, or subsequently, the level of cover was inappropriate, since there was never anything other than a remote risk that the £50,000 might prove insufficient. The level of disbursements incurred, up to the date of judgment on liability on 31 January 2005, amounted to £2,952.38. In any event, from that date onwards the Claimant's risk of not succeeding was even lower than it had been before (bearing in mind that he was a passenger at the time of the collision).
168. By the time the revised schedule of loss of £2.6 million was served, on 30 September 2006, disbursements had risen to £14,851.38. By this time there had been a payment into court by the Defendant of £277,170.
169. The Claimant's only risk, which again was remote, was that the payment in would not be beaten. By 16 May 2007, when a Part 36 offer of £850,000 was made, disbursements amounted to approximately £23,500. There was never any serious risk that any liability the Claimant might have had would not have been covered by his insurance policy. Shortly after this, the Defendant offered to settle for £1 million. The approval hearing took place on 25 June 2007.

Conclusion

170. In my judgment the possibility of the Claimant losing this action was never anything other than remote. The high point of the risk was after the offer of £850,000, on 16 May 2007. Experienced Leading Counsel had been instructed, and a good settlement was achieved for the Claimant. Although there was a theoretical possibility that the Claimant might be left with a personal liability for his own disbursements and/or adverse costs, I do not regard the failure by the Solicitors to go into that level of detail as a breach of the Regulations. If, however, I am wrong about that, I am not persuaded that that breach has had any materially adverse effect, either on the protection afforded to the client, or on the administration of justice. Nor am I of the view that the Claimant's liability for disbursements was in some way capped because the Solicitors did not spell out to him the theoretical possibility that he might have an open ended liability.

SUMMARY

171. I decide the issues as follows:

The Conditional Fee Agreement dated 20 July 2001

Issue 1

172. The conditional fee agreement dated 20 July 2001 is unenforceable, in that the Claimant's Solicitor failed to provide any adequate oral explanation of the matters required by Regulation 4 of the Conditional Fee Agreements Regulations 2000.

Issue 2

173. The CFA is unenforceable because of a breach of Regulation 4(d) and (e) of the 2000 Regulations, in that the Claimant's Solicitor failed to provide the Claimant with the information required by those Regulations, namely whether other methods of financing the costs were available, and whether the solicitor considered any particular insurance product was appropriate, and if so his reason for doing so.

Issue 3

174. The Claimant's Solicitor did have a disclosable interest in the TAG policy, in the sense required by Regulation 4(2)(e)(ii) of the 2000 Regulations. The CFA is unenforceable because the Claimant's Solicitor failed to disclose that interest adequately before the Claimant entered into the CFA.

Capacity

Issue 4

175. The CFA with the Claimant came to an end as a result of his lack of capacity on 4 February 2004.

Issue 5

176. The Litigation Friend by her conduct instructed the Claimants' Solicitors on the same terms as the second CFA. The oral and written explanation given to the Claimant on 28 January 2003 was also given to and understood by the Litigation Friend.

Issue 6

177. The question whether the retainer between the Litigation Friend and the Solicitors is one which complies with Section 58 of the Courts and Legal Services Act 1990 depends upon the outcome of Issues 10 and 11 below dealing with the second CFA.

Issue 7

178. Subject to the second CFA proving to be enforceable the Claimant has a liability to his solicitor for the period up to 4 February 2004 for reasonable costs pursuant to Section 1(3) of the Law Reform (Frustrated Contracts) Act 1943.

The Letter of 4 May 2006

Issue 8

179. The letter of 4 May 2006 can only be relied on to increase the hourly rates recoverable by reference to the Retail Prices Index from 4 May 2006.

Issue 9

180. The letter does not amount to any wider variation of the terms of the retainer as set out in CFA2, save to the extent that the hourly rates may be increased by reference to RPI. The varied contract is binding on the Litigation Friend so as to allow the recovery of fees and expenses between the parties at rates no higher than those calculated by reference to the increase in RPI.

The Second CFA

Issue 10

181. The Claimant did enter into a second CFA in the autumn of 2002.

Issue 11(a)

182. The second CFA does not comply with the Regulations, in that no adequate explanation was given to the Claimant in respect of the TAG ATE insurance, or the Solicitor's interest in recommending it. Those breaches, however, have not had a materially adverse effect on the protection afforded to the client, or on the administration of justice. Mrs Findley-Clarke instructed the Solicitors on the same terms as those in the second CFA. There was a breach of the Regulations in that the second CFA was not signed by the Litigation Friend. For the reasons given that breach has not had a materially adverse effect on the protection afforded to the client, or on the administration of justice.

Issue 11(b)

183. The issue of undue influence was not pursued.

Issue 11(c)

184. The first CFA was not terminated when the second CFA was entered into. The Claimant accepts that if the second CFA is effective, and the first CFA is unenforceable, no costs are payable under the first CFA.

The Indemnity Principle and the LEI Policy

Issue 12

185. The Claimant's liability for his own disbursements was not limited by reference to the extent of his legal expenses insurance cover. He is accordingly able to recover the full amount of the disbursements which are reasonable and proportionate.

Issue 13

186. If the Solicitor's failure to explain to the client any potential liability for his own and/or adverse costs in excess of the limits of the legal expenses insurance policy amounts to a breach of Regulation 2(1)(b) and/or Regulation 4(2)(a) (which I do not find), that breach does not have any materially adverse effect on the protection afforded to the Claimant, or on the administration of justice.