REGULATION 4; HOW FAR SHOULD YOU GO?
WHITE -v- REVELL

A common question posed to solicitors is what should be asked of the client before entering into a Conditional Fee Agreement and what advice should be given thereon, in particular where the Agreement is not supported by After the Event Insurance. The case of Myatt v National Coal is now well known, and its implications a matter of record. Recently, however, a similar issue was again raised in the above case, heard in the Supreme Court Costs Office before Master Wright on 8 September 2006. Following a Road Traffic Accident the Claimant, who had DAS Legal Expenses Insurance as part of his motorcycle insurance, instructed a firm of solicitors on the DAS panel that acted for him on a privately funded basis. Shortly afterwards, the Claimant instructed a separate firm of solicitors, who were not on the DAS panel, who also initially acted for him on a conventional privately funded basis and subsequently under a Conditional Fee Agreement. It was alleged by the Defendant that the Conditional Fee Agreement entered into was unenforceable since the solicitor had failed to comply with Regulation 4 of the Conditional Fee Agreement Regulations 2000 generally, and specifically Regulation 4 (2) (c). This regulation concentrates on whether a clients risk of incurring liability for costs is insured against under an existing contract of insurance, and the enquiries into the same. The solicitor in question had simply taken the clients word that he did not hold any alternative insurance policies. In his judgement Master Wright expressed the view that the Regulations do not specify when the Regulation 4 advice must be given. They do not require the solicitor to give the Regulation 4 advice at the time the Conditional Fee Agreement is signed.

“The guidance given by the Court of Appeal in Garrett and Myatt as to the steps a solicitor should reasonably take to discharge his obligations under Regulation 4 (2) (c) is neither rigid nor exhaustive.”

If the client is asked specific questions as to the existence of alternative insurance policies, this could be deemed sufficient to satisfy the requirement of Regulation 4 advice. Here the client was an articulate and educated man, a professional quantity surveyor, whose professional work equipped him to evaluate advice given to him and decide whether or not he had any existing policies in addition to the DAS policy.

MYATT -v- NATIONAL COAL BOARD 

This was a noise induced deafness claim, which concerned Reg. 4(2)(c) of the CFA Regulations 2000. That regulation requires the solicitor to inform the client whether he considers that the client’s costs risk is insured under an existing contract of insurance. The solicitors had made certain inquiries of their clients over the telephone designed to elicit whether BTE cover was available, but in each case they had been told that it was not. They had not asked to see any policy documents, and there was an issue as to the effect of the questions which they had asked. The Costs Judge had held that the inquiries were inadequate, in that they had required unsophisticated clients to form a judgment as to whether their household etc policies covered a claim for industrial disease against their former employer. In addition, it was found that the solicitors had in fact asked the wrong questions. Whilst the Court found that it was not possible to give rigid guidance as to the questions that a solicitor should ask in every case, the following factors would be relevant: (1) the nature of the client; (2) the circumstances in which the solicitor was instructed; (3) the nature of the claim; (4)the cost of the ATE premium; (5)and, if the claim had been referred to solicitors who were on a panel, whether or not the referring management company had itself investigated the question of the availability of BTE. The case was appealed, but the appeal was dismissed.

It should be borne in mind that the wider the question posed by the solicitor – for example, “Do you have legal expenses cover?” as opposed to “Do you have a policy to cover the costs of a vibration white finger case against your employer?” – the greater the likelihood that the regulation will have been met.

GARETT -v- HALTON BOROUGH COUNCIL

This claim concentrated on 4 (2)(e) of the regulations, which requires the solicitor who recommends a particular policy of insurance to declare any interest he may have in doing so. The case originally had been referred to the solicitor by a claims management company and it was found to have been a term of the solicitor’s panel membership that he should recommend the policy of insurance promoted by the claims management company, with exclusion from the panel as a sanction for failure to comply. The solicitors had declared that they had no interest in recommending the policy on the basis that they got no commission for doing so, though they informed the client orally that they were on the panel. The judge held that panel membership in those circumstances was a disclosable interest under the regulations, which had not been disclosed, and that accordingly there was a materially adverse effect on the protection afforded to the client. Of course this case is particularly important for those solicitors who are panel members of a claim management scheme. The case was appealed, but the appeal itself was dismissed. It should be borne in mind that before the revocation of the CFA Regulations themselves, the arbiter of the sale of insurance products was the Law Society itself, acting in accordance with the Solicitors Financial Services (Conduct of Business) Rules 2001. This also explains what steps must be taken by a solicitor, and what guidance a client should be given, before any insurance product is recommended.

GLOUCESTERSHIRE COUNTY COUNCIL -v- EVANS

The Court of Appeal gave consideration to a variable Conditional Fee Agreement which provided for an hourly rate of £145.00 per hour plus 100% success fee in the event of a win but a discounted hourly rate of £95.00 per hour in the event of a loss.  The maximum permissible success fee is 100% in accordance with the Conditional Fee Agreements Order 2000.  The Defendant argued that on proper construction of Section 58 of the Courts and Legal Services Act 1990 (as amended) the agreement was unenforceable because the success fee should apply to the costs  at risk which in this case was work done at £50.00 per hour being the difference between the two rates and a success fee of £145.00 per hour (100% of £145.00) represented a success fee of 290%.
The found that on proper construction of Section 58 it is the amount of costs to be increased (namely £145.00 per hour) which were subject of the success fee and not the costs at risk as the Defendant suggested.  The agreement was therefore found to be enforceable.  The Court made clear however, that the costs at risk could be borne in mind on assessment when considering the reasonableness of the success fee.

JONES -v- WREXHAM BOROUGH COUNCIL

The Defendant challenged the validity of the Claimant’s CFA (pre revocation of the CFA Regulations 2000) on the grounds that the Claimant’s solicitor had failed to comply with Regulation 4 (2) (e) (ii) relating to the requirement to inform the Claimant of any interest the solicitor may have in recommending an insurance policy.

The issue was heard in Garrett, though the Claimant sought to distinguish the present case for various reasons including that the CFA in the present case was a CFA Lite to which Regulation 4 did not apply. CFA Lites were introduced by the CFA (Miscellaneous Amendments) Regulations 2003 which inserted a Regulation 3A into the 2000 Regulations and which provided that under a CFA Lite the Claimant is liable to pay his legal representative’s fees only to the extent that the fees are recovered in respect of the relevant proceedings, whether by way of costs or otherwise.

The 2003 Regulations came into force on 2 June 2003 and the CFA in the present case was dated 19 June 2003 though it was in a form produced in 2001 which purported to comply with the 2000 Regulations. The CFA was sent to the Claimant under cover of a rule 15 letter.

The Claimant was successful in arguing that the 2003 Regulations applied before District Judge Fairclough. He allowed reliance upon the rule 15 letter and reliance upon the recoverability of disbursements under an insurance policy, so as to reach the conclusion that the CFA fell within Regulation 3A.

However, on appeal to His Honour Judge Holman the Claimant was unsuccessful, the judge ruling that the letter was not an admissible resource when construing the CFA contract and also ruling that, if the fees could be met by insurance, it followed that the liability was that of the Claimant. Thus, His Honour Judge Holman went on to consider Regulation 4 and reached the decision that there had been non compliance with the same. He therefore held that the CFA was unenforceable for failure to inform the Claimant of an interest in recommending the insurance policy.

Two points of principle fell to be considered in determining if the CFA was a CFA Lite or not, one of which was whether or not the words “or otherwise” in Regulation 3A included insurance. On appeal, Lord Justice Waller felt that these words were never intended to exclude insurance.

The second point of principle was whether, in considering whether a CFA falls within Regulation 3A, regard should be had to the rule 15 letter. S.58 of the Courts and Legal Services Act 1990 requires the CFA to be in writing and Regulation 5 provides that it must be signed, and Lord Justice Waller could see no rule which required the CFA to be in one document. He therefore could see no reason why the Court should not look at the whole package including the rule 15 letter.

He concluded that whether a CFA is a Lite or not depends upon the construction of the arrangement made between the solicitor and the Claimant, including any arrangement made in the rule 15 letter, and he therefore deemed the CFA in this case to be a CFA Lite.

As regards Regulation 4 (2) (e) (ii) the Claimant sought to distinguish Garrett on the basis that there was no term that if the solicitor did not recommend the insurance their membership of the panel would be terminated. Lord Justice Waller felt that Garrett could not be distinguished on this basis alone. He held that the solicitor clearly had an interest in the insurance policy and had the CFA not been a CFA Lite, there would have been non compliance with Regulation 4 (2) (e) (ii) by the solicitor’s failure to disclose the interest and the CFA would have been unenforceable.

The other judges agreed and the appeal was allowed.