Suinner v FBN Bank (UK) Limited

In the case of Suinner v FBN Bank (UK) Ltd [SCCO] 22/2/07 the Claimant instructed Sherringtons solicitors to act for him in relation to an EL matter under a Conditional Fee Agreement (CFA). The CFA recommended that the Claimant take out an after-the-event (ATE) insurance policy with Costsupport. The CFA stated that: “This is because” but was then blank where the reasons for the recommendation should have appeared. This prima facie amounted to a breach of Regulation 4(2)(e)(i) which requires the legal representative to inform the client before a CFA is entered into:

“(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.”

Whether the breach was material became obvious from the nature of the ATE policy that had been recommended. The policy premium was calculated as being a percentage (20%) of the damages recovered. This is an unusual method of calculation and had been the subject of previous judicial consideration by the Senior Costs Judge, Master Hurst, in Pirie v Ayling [2003] EWHC 9006 (Costs). He concluded that although such a method was lawful, it was inherently flawed and substantially reduced the amount claimed. What was significant about this decision, which was made prior to Mr Suinner instructing Sherringtons in his claim, was that the Claimant’s solicitors in Pirie were also Sherringtons. (Coincidentally, Simon Gibbs who appeared for the Defendant here also acted for the Defendant in that case.) Therefore at the time that they were recommending that Mr Suinner obtained a policy with Costsupport they were already aware that the premium calculation was inherently flawed and was unlikely to be recovered in full at detailed assessment.

Mr Suinner’s claim was pitched at one stage as being in the region of £150,000. If damages had been recovered at that level the premium would have been £30,000. A premium that high would have been grossly excessive for an EL claim of this nature and well in excess of equivalent policies available at the time. Further, the Costsupport policy only provided an indemnity of £10,000. If the matter had proceeded to trial the cover would have proved entirely insufficient. Indeed, that is precisely what happened when the Claimant lost at trial on the Defendant’s Part 36 offer. The Defendant’s costs for the relevant post-Part 36 period were claimed in excess of £18,000.

It was argued for the Defendant that the failure to give any reasons for recommending the Costsupport policy was particularly serious in light of the policy that was being recommended. The failure to explain that it would be highly unlikely that the premium would be recovered at much more than a fraction of its full amount, meaning that the Claimant would be liable for the shortfall, and the failure to explain that the level of indemnity was likely to prove insufficient meant that the Claimant was unable to make an informed decision as to the suitability of the policy at the time of entering into the agreement. Reliance was placed on the following passage from Garrett v Halton Borough Council [2006] EWCA Civ 1017:

“101. At para 90 of Hollins v Russell, the court recorded the submission of Mr Drabble that the statutory regulation had two distinct aims. The second, he submitted, was “to protect the client – to ensure so far as possible that she understands what she is letting herself in for and is able to make an informed choice amongst the funding options available to her”. The court seems to have accepted this submission. We certainly would. In our judgment, by informing Ms Garrett that they were on the Ainsworth panel, the Websters representative did not disclose the real financial interest they had in recommending the NIG policy.”

As such, it was clear that not only had there been a breach of the Regulations but that such a breach was material. The Court accepted these submissions and all the Claimant’s costs incurred under the CFA were disallowed (having been claimed at over £10,000).

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