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Garrett v Halton Borough Council; Myatt v National Coal Board, Court of Appeal, 8 July 2006

21 July 2006
The issues

Costs – CFA – breach of Conditional Fee Agreement Regulations 2000 Regulation 4.(2) – whether prejudice suffered by client.

The facts

In Garrett
Mrs Garrett suffered personal injury following an accident in February 2003. In June of that year she entered into a CFA with her solicitors. The success fee was 70%. The claim was settled in the sum of £3,800.00 plus costs. The matter went to detailed assessment. The District Judge disallowed the entirety of the solicitors costs on the grounds that he thought they had acted in breach of Regulation 4.(2)(e)(ii) of the regulations, namely that in recommending ATE insurance they had failed to inform her whether they had an interest in so doing. She appealed to the Judge. The grounds of appeal for the Judge raised four issues. He granted permission in respect of one only, namely, if there had been a failure to disclose in accordance with Regulation 4.(2)(e) did that failure have a materially adverse affect on the protection afforded to Mrs Garrett or on the administration of justice so as to render the CFA unenforceable. He had not given permission with regard to issues as to whether there was a breach at all. The Court of Appeal agreed to hear full argument however on that argument as well.

In Myatt
Four Claimants were employed by the Defendant and each suffered from noise induced hearing loss. Each case was settled for less than £5,000.00 with an agreement that the Claimant’s costs would be paid by the Defendant. The Claimants had entered into CFA’s with Ollerenshaw and orders were made in the Warwick County Court for a Detailed Assessment of those costs. Subsequently the matter was transferred to the Supreme Court Costs Office. The matter came before the Costs Judge on a preliminary issue as to whether or not the CFA in each case was unenforceable by reason of a breach of Regulation 4(2)(c) CFA Regulations 2000. Regulation 4(1) provides:- “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”.

Regulation 4(2) provides those matters are:-

c) “Whether the legal representative considers that the client’s risk of incurring liability for costs in respect of the proceedings to which the agreement relates is insured against under an existing contract of insurance”

Ollerenshaw had industrial disease claims referred to it by Beresford’s Solicitors LP. Beresford’s took initial instructions from the Claimant and the questionnaire was completed. On receipt of the fully completed questionnaire Ollerenshaw would take over the conduct of the claim. Fee earners at Ollerenshaw concerned in the claim in these cases, one gave evidence of the two and one did not. The one who gave evidence stated that she followed the firm’s standard pre conditional fee agreement procedure. This involved an initial telephone call to the client. Fee earners would go through the no win no fee oral advice check list with the client on the telephone. The fee earner would then have to complete a form confirming that certain matters had been explained to the clients, namely what constituted a win and what constituted the firm’s fees and costs; the circumstances in which costs and fees became payable; the client’s right to seek Detailed Assessment of costs; details of pre-existing legal expenses insurance and other methods of funding the claim. The client would be asked whether he has credit cards and motor insurance policy or a household insurance policy or trade union membership which would entitle him to legal expenses insurance in respect of the claim for noise induced hearing loss.

A bundle of paperwork was sent to the Claimants. A client care letter in each case referred the Claimant to the possibility of legal expenses insurance and asked the Claimant to check the policies that they had to see if they had that type of cover. The Claimant was asked to sign a form confirming that these matters had been considered and that they had no other legal cover.

It also asked them to check whether they or anyone in their household or the driver in any car which they were a passenger at the time of any road traffic accident had any pre-purchased legal expenses insurance. The Defendant argued that following Sarwar it was good modern practice to invite clients to bring with them any relevant motor insurance policies or to develop a standard form of letter requesting sight of these documents in advance of any first interview. They argued that the greater the proposed premium the greater the duty on the solicitors to carry out proper investigations. They submitted that there was no evidence that the client had had any warning of the proposed telephone call or the desirability of having available to them any insurance policies belonging to him or a member of the household. The view was the proper question was to ask clients whether they had or anyone in their household had credit cards, motor policies or household policies or Trade Union membership and if the answer to that question was yes, that the solicitors should then have asked to see the documents.

Both Claimants appealed.

The decision

Hollins v Russell had given rise to the test of “materiality” when considering the effect of a breach of the CFA regulations. It left questions undecided however, notably, whether the Court was required to consider whether the client had suffered actual prejudice; and whether the enforceability of a CFA was to be judged by reference of the circumstances existing at the time that it was entered in to or by reference to the circumstances known to exist at the time when the question arose for decision. In Hollins v Russell the Court of Appeal had summarised its conclusions as to the right approach to paragraph 222 at paragraphs 219 to 226 of the Judgment. At paragraph 222 the Court had said “if the Court considers that if between solicitor and client the client would have just cause for complaint because some requirement introduced for his protection was not satisfied÷. then the CFA would be unenforceable”. The Court was not saying, or even implying, that the CFA would be unenforceable only if the client had suffered some detriment. The question had not therefore been decided in Hollins v Russell.

The Meaning of the Test in Hollins v Russell: Does Materiality Require a Consideration of Actual Detriment?

If it had been intended that a CFA should only be enforceable where the client had suffered actual damage it would have been easy enough to provide it. The focus of the scheme was on whether the CFA satisfied the applicable conditions, not on the actual consequences of a breach. It was a fallacy to say that a breach was trivial or not material merely because it did not in fact cause loss. The scheme had a wider purpose, namely that of providing for client protection and the proper administration of justice. The importance of Hollins v Russell was that it dealt a fatal blow to challenges that were made by Defendant insurers to the enforceability of CFA’s on the grounds of minor technical breaches of the statutory requirements. The Court explained that Parliament had not intended that such breaches should render CFA’s unenforceable. The breaches had to be material in the sense that they had a materially adverse effect on the protection given to the client or on the proper administration of justice. The primary purpose of the requirements was to provide protection to Claimants. It would be extraordinary if the Court were required to hold that however egregious a breach it was not material if it had not in fact caused the client to suffer loss.

The enforceability of a CFA was to be judged by reference to circumstances existing at the time it was entered in to.

The Myatt cases.
The Court agreed with the Master that the solicitors had asked the wrong question. They should not have asked these ex-miners to decide whether they had BTE which would cover their risks as to costs. Because they had asked the wrong question they had not taken reasonable steps to ascertain the true insurance position so as to enable them to inform their clients whether they considered the risk was already insured. The Master had been right to find that the Claimant’s solicitors had failed to inform the four Claimants whether they considered that the risk of incurring liability for costs in respect of their claims was insured under a BTE. Although none of the four had BTE which would cover his claim, there was a material breach of Regulation 4(2)(c) and the appeals would be dismissed.

In Sarwar the Court of Appeal had indicated that proper modern practice dictated that a solicitor should normally invite a client to bring to the first interview any relevant motor insurance policy, household policy and any standard line BTE insurance policy belonging to a spouse or partner. At the same time the Court had said that the enquiries should be proportionate to the amount at stake.

The duty is a duty to act reasonably. The duty under Regulation 4(2)(c) does not require solicitors slavishly to follow the detailed guidance given by the Court in Sarwar. In particular the recommendation that solicitors should normally invite clients to bring to the first interview relevant policies should be treated with considerable caution since it had no application in high volume, low value litigation conducted by solicitors on referral by claims management companies. Some general guidance could be given, notwithstanding that what was reasonably required of a solicitor would depend on all the circumstances of the case. Firstly, the nature of the client was important. If the client was evidently intelligent and had a real knowledge and understanding of insurance matters it might be reasonable for the solicitor to ask him, not only whether he had credit cards, motor insurance or household insurance, or was a member of a Trade Union and whether he had legal expenses insurance, but also the ultimate question of whether the legal expenses policy covered the proposed claim and whether it did so to a sufficient extent. Few litigants would fall into this category. Secondly, the circumstances in which the solicitor was instructed might be relevant. A good example would be the case of Pratt v Bull where an 80 year old Claimant was injured in a road traffic accident and the solicitor visited her whilst in hospital and made a CFA. It was sufficient in such circumstances that the solicitor had discussed the question of BTE funding and had formed a view on the funding options. Thirdly, the nature of the claim might be relevant. If the claim was one in which it was unlikely that standard insurance policies would provide cover then this might be a further reason why it may be reasonable for the solicitor to take fewer steps to ascertain the position than might otherwise be the case. Fourthly, the cost of the ATE premium would be a relevant factor. It is as relevant to the question of breach of Regulation 4(2)(c) as to the question of the reasonableness of the premium for the purposes of an assessment of costs under CPR 44.4. Fifthly, if the Claimant had been referred to solicitors who are on a panel it might be relevant that the referring body had already investigated the question of the availability of BTE. Whether it was reasonable to rely on a conclusion already reached would be a matter on which the panel solicitor would have to exercise his own judgment. Rigid guidance could not be given. However, a solicitor was not required in every case to ask a client who said he had a home, or a credit card or motor insurance or was a member of a Trade Union to send in the policy or trade union membership document. In some circumstances it would be reasonable for the solicitor to ask the further question as to whether the insurance covered legal expenses and to rely on the answer given without further ado. There was an argument however for saying that to require the solicitor to ask the client to send the policies in all cases had to add the merit of certainty and would minimise the risk of satellite litigation. In some cases such an approach would be reasonable and necessary to enable the solicitor to discharge his duty but it was not required in all cases.

Garrett v Halton Borough Council
The Claimant’s solicitors had a financial interest in recommending NIG insurance to the Claimant. There had not been sufficient disclosure of that interest. The Claimant’s solicitors had said to the Claimant that they had no interest in the insurance premium although they had admitted that they were on the AA panel. They did not disclose to the Claimant that the Claimant’s solicitors 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. Though it had been disclosed that the Claimant’s solicitors were on the Ainsworth panel the Claimant could not be taken to have understood the significance of that statement. The word “interest” in Regulation 4(2)(e)(ii) was not ambiguous and should be construed by giving in plain language its normal and natural meaning. It included membership of a panel such as the one to which the Claimant’s solicitors belonged.

Appeal dismissed.

Comments

One wonders whether most Claimant’s solicitors will feel more or less certain of their “Sarwar” obligations after the Court of Appeal’s guidance.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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