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Hollins v Russell, Sharratt v London Central Bus Company, Court of Appeal, 22 May 2003

30 May 2003
The issues

Conditional Fee Agreement – CFA – Disclosure Of CFA To Paying Party – Indemnity Principle – Compliance With CFA Regulations.

The facts

1. The Court of Appeal convened to hear a group of appeals all dealing with aspects of the new Conditional Fee Agreement regime. In particular, the Court of Appeal were asked to deal with three specific issues

1) Namely the circumstances in which a Court should put a receiving party in Detailed Assessment proceedings to its election, so that it must choose whether to disclose its CFA to the paying party or to endeavour to prove its claim by other means.

2) The proper construction of the words “satisfies all of the conditions applicable to it” in Section 58(1) of the Courts and Legal Services Act 1990 and whether any costs or disbursements are recoverable from a paying party in the event of non compliance with the CFA regulations.

3) Whether on particular facts the requirements contained in one or other of Regulations 2, 3 and 4 of the CFA Regulations were not complied with.

The Relevant Regulations

Regulation 2 (1) refers to “the amounts which are payable in all the circumstances in cases specified or the methods to be used to calculate them and, in particular, whether the amounts are limited by reference to the damages which may be recovered on behalf of their client”. Regulation 2(2) provides that the Conditional Fee Agreement which Regulation 4 applies must contain a statement that the requirements of that Regulation which apply in the case of that agreement have been complied with.

Regulation 3 of the new regulations contains requirements for the contents of CFA’s providing for success fees but in particular provides that a Conditional Fee Agreement providing for a Success Fee “must briefly specify the reasons for setting the percentage increase at the level stages in the agreement, and ÷. must specify how much for the percentage increase, if any, relates to the cost of the legal representative of the postponement of his fees and expenses.

Regulation 4 provides for specified information to be given before a Conditional Fee Agreement is made. The legal representative must inform the client about the circumstances in which the client may be liable to pay the costs of the legal representative; the circumstances in which the client may seek assessment of the fees and expenses of the legal representative and the procedure for doing so; 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; whether other methods of financing those costs are available, and, if so, how they apply to the client and the proceedings in question; and whether the legal representative considers that any particular method or methods of financing any or all of the costs in respect of the proceedings to which the agreement relates is appropriate and, if he considers that a contract of insurance is appropriate or recommends a particular contract why he does so and whether he has an interest in doing so. Regulation 4 refers to the legal representative informing the client about these matters and requires that the effect of the agreement is explained both orally and in writing.

The decision

1. Whether the CFA should ordinarily be disclosed?

It should become normal practice for a CFA to be disclosed for the purposes of costs proceedings in which a success fee is claimed. If the CFA contains confidential information relating to other proceedings it may be edited before disclosure. Attendance notes and other correspondence should not normally be disclosed. If however the Costs Judge considers that a genuine issue has been raised which requires disclosure of letters of correspondence or attendance notes then he may require its disclosure. A genuine issue is one where there is a real chance that the CFA is unenforceable as a result of failure to satisfy the applicable conditions.

2. Operation of the Indemnity Principal

A CFA was a contentious business agreement to which Section 60 (3) of the Solicitors Act 1974 applied. If the solicitor could not enforce the agreement against his client then those costs could not be recovered from the other side.

Generally Costs Judges should ask themselves when considering whether in a particular case a CFA is unenforceable by reason of non-compliance the following question “has the particular departure from a Regulation or Requirement in Section 58, either on its own or in conjunction with any other such departure in this case, had a materially adverse effect either upon the protection afforded to the client or upon a proper administration of justice”.

Whether a particular non-compliance had had a materially adverse effect would depend upon the circumstances of each particular case.

3. The particular cases: –

i) Regulation 2(1)(d). (Tichband v Hurdman)
No reference was made to the question of whether any element of the amounts payable were limited by reference to the damages recovered. In the Court below it was held that it was unenforceable since it did not comply with the CFA. The Court of Appeal decided that the CFA had to be read as a whole. Although the agreement did not state in so many words whether the amount payable was limited by reference to damages recovered Clause 30 of the CFA made it clear that the amount of the solicitors base costs was calculated by applying an hourly rate to the number of hours spent. The method of calculation was obviously not one dictated by the amount of damages recovered and there was nothing in the agreement to suggest otherwise. The position was therefore spelt out with sufficient clarity so that the client could be in no doubt about it.

ii) Regulation 3 (1)(b). (Tichband v Hurdman)

Could an agreement be enforced where it had not specified how much of the percentage increase of the success fee related to the cost of the legal representative of the postponement of the payment of his fees. In Tichband the agreement stated that none of the success fee was attributable to postponement. The risk assessment accompanying it said that 5% was attributable. The Court of Appeal described the point taken by insurers as “as unattractive as it is unmeritorious”. The reality was the Court of Appeal found that despite what was said in the risk assessment calculation, none of the recoverable success fee was attributable to the postponement in payment of the solicitor’s fees. Reading the CFA as a whole this was clear and the CFA therefore complied.

iii) Regulation 4(2)(c). (Pratt v Ball, Dunn v Ward and the TAG test cases)

The Regulation requires that a client should be informed “whether the legal representative considers that the client’s risk of incurring liability for costs in respect of proceedings to which the agreement relates is insured against under an existing contract of insurance”. In other words the insurers were concerned that other methods of funding might not have been properly explored. Here the Claimant was an 80-year-old woman and the CFA was made whilst she was in hospital having recovered sufficiently to give instructions. The Defendant’s solicitors demanded not only the CFA but attendance notes and documents showing that she had been given all the oral and written information required. In the Court of Appeal’s view this was a classic case in which there was no good reason to think that the conditions had not been sufficiently satisfied. There were limits to what could reasonably be expected when dealing with a client in circumstances such as these. “It would be ridiculous to expect a solicitor dealing with a seriously ill old woman in hospital to delay making a CFA while her home insurance policy was found and checked”. It was sufficient that it had been discussed and a view taken on funding options.

iv) Regulation 4(2)(e) (ii).

The issue was whether the solicitor who had no interest in recommending a particular insurance contract should expressly state this to the client. Where the legal representative had no interest there was no need for him to expressly state that he had no such interest.

v) Regulation 4 (5) This requires the legal representative to explain the effect of the CFA in writing before it is entered into in addition to the oral explanation required by Regulation 4(3).

This point also arose in Dunn v Ward. The Claimant had had a 48-minute interview in which he had received a full oral explanation of the effects of the CFA from her solicitors. It was not clear whether she had met her solicitor or whether it was given over the telephone. On the same day she was sent two documents – the first the Client Care Letter confirming that an ATE policy had been taken out with Temple Legal Protection but making no mention of a CFA and being written as if she were a privately paying client. The second option was the CFA which was in two parts stapled together – the first headed Conditional Fee Agreement based on the Law Society’s July 2000 model and the second Law Society conditions identical to the conditions following at the end of that model CFA. These cases had to turn on their own facts and the main purpose behind the Regulations was that the client should not be left in confusion. On these facts the matter was plain to the client. There was no reason in principal why a CFA should not contain within it its own explanation although it agreed with the Judge below that a freestanding letter of explanation might be preferable.

vi) The TAG Cases – who is “a legal representative”.

The Defendants argued that a solicitor could only delegate the responsibility under Regulation 4 to another qualified solicitor or to a fellow of the Institute of Legal Executives. Parliament had wished to foster new ways of rendering litigation services, and provided that the performance of the Regulation 4 duties was appropriately delegated and that the duties were properly performed under appropriate supervision, there was nothing contrary to delegation by solicitors beyond the classes proposed by the Defendants. The Court of Appeal did not wish to give guidance as to the form which that supervision should take as long as an appropriate system had been set up. The Court of Appeal expressed some concern about the final item of the oral explanation sheet provided by TAG in which it is said that the client does not require any further explanation or advice. That was difficult to reconcile with the solicitors’ introductory letter inviting the client to tell him if she had any queries. The Court of Appeal were told on behalf of TAG that in practice the TAG representative would deal with any matters which the client raised. The Court agreed with the view expressed by the Master below that the explanation of what happened in practice was best left for the later hearing. In theory however it was permissible for a solicitors firm to delegate performance of this regulation for duties to an organisation like TAG and for TAG to sub-delegate to its representatives providing that in so doing the solicitor was not abandoning the supervisory responsibility required of him. Whether the TAG scheme provided properly for this was a matter for the fact – finding trial later.

vii) Generally, District Judges and Costs Judges must be astute to prevent satellite litigation about costs from being protracted by allegations about breaches of the CFA Regulations where the breaches did not matter. The CFA should be declared unenforceable only if the breach did matter and if the client could have relied upon it successfully against his solicitor.

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