Accident Line Protect – The final (?) decision


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Earlier today judgment was handed down in the long-awaited Accident Line Protect (ALP) Test Cases (reported as Tankard v John Fredricks Plastics Ltd [2008] EWCA Civ 1375. In previous Costs Law Updates we have been following the progress of these cases but will outline again the main issues.

These challenges centred around the issue of whether there had been a breach of Regulation 4(2)(e)(ii) of the now revoked CFA Regulations 2000, which required the legal representative to inform the client before a CFA was 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:

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

In Garrett v Halton Borough Council [2006] EWCA Civ 1017 the Court of Appeal had held to be invalid a CFA where the solicitors had failed to inform the client that they had an interest in recommending an insurance policy. This was on the basis that, although the solicitors had told their client that they were on a claims management company’s panel (Ashley Ainsworth), they had failed to inform the client that they thereby had an indirect financial interest in recommending the policy, because if they did not recommend the particular insurance policy they would have their panel membership withdrawn. The Court concluded that the profit generated by cases referred was likely to be of greater significance to the solicitors than any commissions that might be paid on insurance premiums. It was this failure to disclose to the client that they had a financial interest in remaining on the panel, which would be lost if the client did not accept their recommendation that they enter into this specific After-the-Event (ATE) policy, that amounted to a material breach of the Regulations, as the client did not know that the solicitors were recommending the policy because this was dictated by their financial interest.

Under the ALP Scheme, the standardised CFAs recommended that the client obtain an ATE policy with Accident Line Protect and stated that the solicitor did “not have an interest in recommending this particular insurance agreement”.

The relevant facts of the Scheme were that:

- The Scheme included a referral service of potential clients to the solicitors.

- The Scheme’s operating manual required the solicitors to comply with all requirements in the manual.

- The manual required the solicitors to issue an Accident Line Protect insurance policy in all eligible CFA cases, whether or not the client had been referred by the Scheme.

- The solicitors could have their membership terminated if they breached any of the procedures in the operating manual.

- The solicitors were entitled to a discount on their ALP membership fee if they issued more than a certain number of ALP policies each year.

The similarities with the facts in Garrett can be seen in that solicitors failed to notify their clients of the financial interest they had in the recommending the particular ATE policy, namely their continued membership of the Scheme and the future referrals that might be lost if they did not use this policy. Nor had they informed the clients that they were obliged to recommend the policy in all cases.

The crucial issue the Court of Appeal had to decide was what amounted to an “interest” within the meaning of Regulation 4(2)(e)(ii). The Court concluded that the proper test was that: “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”. The regulation was:

“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.”

Applying this test to the facts in the test cases, the Court distinguished the ALP Scheme from the claims management scheme in Garrett.

- They concluded that mere membership of a panel would not necessarily amount to an interest.

- Ashley Ainsworth, in Garrett, were “claims farmers”, unlike the ALP Scheme.

- The solicitors in Garrett had a “substantial” dependency on Ashley Ainsworth through the referrals they received from them, unlike the solicitors in these test cases.

- In the three cases considered in the ALP Test Cases the overriding consideration for the ATE recommendation was “the quality of the Accident Line ATE policy. That was why the solicitors subscribed to the scheme and recommended the policy to their clients.” The prospect of referrals was “an incidental matter”.

- It was accepted that the requirement in the ALP Scheme to recommend the ATE policy in all cases was to avoid adverse selection in relation to the underwriter rather than as a “hidden quid pro quo for a referral of a case”. Therefore, the fact that no other policy could be recommended did not, in itself, amount to a declarable interest.

The Court concluded that “in the absence of particular facts, such as, say, very significant dependence on the scheme for a firm’s revenue (which would have to be examined on the facts of the particular case), there is no conflict of interest between the client and his or her solicitors if the test set out above is applied”.

Although the Court did not expressly endorse the “de minimis” approach that had been adopted by some of the lower courts, they did comment on the low level of fee income/turnover that the ALP referrals represented to the firms involved in these test cases (ranging from 0.15% to 4.57%). Given their other comments concerning “substantial” and “significant” dependence, it does seem clear that an interest would not be a declarable interest if it did not reach a certain level. This aspect of the judgment is the most unsatisfactory:

- How large does the interest have to be to become declarable?

- Are detailed assessments now going to descend into the same kind of analysis as appeared to have happened in some of these test cases, with firms producing detailed accountancy evidence as to the relative value of the referrals? Will teams of forensic accounts now start poring over the evidence?

- Does this mean that two different clients can obtain identical advice on the same scheme from two different firms and that there may have been a breach by one firm but not the other because of the firms’ relative “dependency” on the scheme?

- At what date is the size of the interest to be determined?

• If a firm had only just joined a panel at the time the CFA was entered into, surely it cannot be right that the interest is to be judged simply by the value of any claims received at that point.

• If the value of the interest is to be determined as at the date of any detailed assessment, that would make the validity of the CFA dependant on facts that occurred after the CFA was entered into. The Court of Appeal has expressly rejected that approach on previous occasions. The date for determining the validity of a CFA is when it is entered into.

• It seems that the size of the interest is actually the potential value of the future referrals that the firm hope to achieve as a result of membership of any scheme. Whether the hoped for numbers actually materialised should be irrelevant. However, here lies the problem. How is the Court, often several years later, meant to attempt to analyse what was in the mind of the solicitors at the time? No doubt many self-serving witness statements will be produced but only limited weight can be attached to these. The fact that a firm did decide to join a particular claim management scheme can only have been on the basis that they thought it was in their financial interest to do so. At that stage, surely, all cases will fail the “reasonable person” test. It seems that the ALP Scheme, the Court having accepted that its main purpose was the ability to offer a good ATE policy, will possibly be the only scheme that would satisfy this test.

Given their findings, the Court held that there had been no interest to declare, there was no breach of the regulation and the CFAs were therefore valid.

Despite these conclusions, the Court did give further, obiter, observations on what is necessary disclosure where there is an interest:

- It is not sufficient to simply state that an interest exists. “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 purpose of the sub-paragraph is to put the client in a position where he can make an informed decision. … This entails explaining to the client the nature of the benefits to the solicitor in remaining on the [scheme] with sufficient clarity for the client to understand what they are and to be able to assess their significance.”

- For the same reason, it would not be sufficient simply to say that the solicitor was obliged to recommend that policy without giving further details as to the nature of the firm’s dependency of the scheme.

- The Court also considered the situation where there is a separate document which contains a statement that the policy is recommended because it is the only one, consistent with the solicitors’ membership of the panel, that they are allowed to recommend, but the CFA itself states they do not have an interest in recommending the insurance. They concluded that “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.”

Despite the Court making a number of adverse comments in relation to the “costs wars”, this decision will have done little to end this type of challenge. Although a collective sigh of relief will have gone up from panel members of the ALP Scheme (and no doubt the Law Society’s insurers given this was a Law Society approved scheme) as future challenges to this scheme, even if the facts were somewhat different, will have no real prospects of success, challenges to other schemes remain open.

Other cases run under claims management schemes remain vulnerable following this judgment. However, the prospects of success or failure are now potentially less certain. Each scheme will not have to be examined on its own facts. Worse, challenges may depend on the facts of the individual firm of solicitors concerned and even vary from time to time within the same firm. This decision may generate more, rather than less, costs litigation.

The price of justice: gratis


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The case of Berry v Spousals (Midlands) Limited & Cape Darlington – (Birmingham CC) 24/4/07 concerned an asbestos related claim which settled for £5,000. The sticking point was the costs. As the judge commented on the subsequent costs appeal:

“I will wager that the parties here, their lawyers, have spent more time dealing with and worrying about costs than about Mr Berry’s claim for damages. … On 5th May a notice of commencement and a bill of costs were sent to the Defendants seeking costs of £39,007.95. This included a success fee of 100 per cent. Mr Berry might have thought perhaps that there was more merit in being a solicitor than being compensated for an asbestos related injury.”

Fortunately the story had a happy ending and the Claimant’s solicitors, Irwin Mitchell, were found to have a defective CFA and their costs were disallowed.

Accident Line Protect


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In our recent Costs Law Updates we have been following the progress of challenges to the validity of CFAs entered into through the Law Society approved Accident Line Protect (ALP) Scheme.

These challenges centre around the issue of whether there had been a breach of Regulation 4(2)(e)(ii) of the now revoked CFA Regulations 2000, which required the legal representative to inform the client before a CFA was 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 –

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

In Garrett v Halton Borough Council [2006] EWCA Civ 1017 the Court of Appeal had held to be invalid a CFA where the solicitors had failed to inform the client that they had an interest in recommending an insurance policy. This was on the basis that, although the solicitors had told their client that they were on a claims management company’s panel, they had failed to inform the client that they thereby had an indirect financial interest in recommending the policy, because if they did not do so they would have their panel membership withdrawn. The Court concluded that the profit generated by cases referred was likely to be of greater significance to the solicitors than any commissions that might be paid on insurance premiums. It was this failure to disclose to the client that they had a financial interest in remaining on the panel, which would be lost if the client did not accept their recommendation that they enter into this specific After-the-Event (ATE) policy, that amounted to a material breach of the Regulations, as the client did not know that the solicitors were recommending the policy because this was dictated by their financial interest.

Under the ALP Scheme, the standardised CFAs recommended that the client obtain an ATE policy with Accident Line Protect and stated that the solicitor did “not have an interest in recommending this particular insurance agreement”.

The relevant facts of the Scheme were that:

- The Scheme included a referral service of potential clients to the solicitors.

- The Scheme’s operating manual required the solicitors to comply with all requirements in the manual.

- The manual required the solicitors to issue an Accident Line Protect insurance policy in all eligible CFA cases, whether or not the client had been referred by the Scheme.

- The solicitors could have their membership terminated if they breached any of the procedures in the operating manual.

- The solicitors were entitled to a discount on their ALP membership fee if they issued more than a certain number of ALP policies each year.

The similarities with the facts in Garrett can be seen in that solicitors failed to notify their clients of the financial interest they had in the recommending the particular ATE policy, namely their continued membership of the Scheme and the future referrals that might be lost if they did not use this policy. Nor had they informed the clients that they were obliged to recommend the policy in all cases.

What has been interesting about the various decisions to date has been the enormous inconsistencies between the various judgments on what were, for the most part, virtually identical facts.

We thought it would be useful to list the decisions to date:

McFadyen v Liverpool City Council – There was a declarable interest and there had been a material breach of the Regulations by failing to declare it. CFA invalid.

Myers v Bonnington (Cavendish Hotel) Ltd – There was a declarable interest and therefore there had been a breach of the Regulations. However, the breach was not material as disclosure of the interest would not have made any difference to the Claimant’s actions. Further, the breach was not material as the interest was “de minimis”. CFA valid.

Elstone v Knowles – The potential for case referrrals was periphal to the scheme and therefore there was no interest to declare. However, if wrong about that, then any breach would have been material. CFA valid.

Janman v Timber Store plc – There was a declarable interest and there had been a material breach of the Regulations by failing to declare it. CFA invalid.

Puksis v Brumby – The solicitors had departed from the normal procedure in such cases and had written a letter to the Claimant explaining they did have an interest. Therefore, on the facts of the case, the judge was satisfied there had not been a breach. CFA valid.

Tankard v John Frederick Plastics Ltd
– There was a declarable interest and there had been a material breach of the Regulations by failing to declare it. CFA invalid.

Jones v Attrill – There was a declarable interest and there had been a material breach of the Regulations by failing to declare it. Judge cast doubt on the validity of the “de minimis” argument. CFA invalid.

Gray v BMC East Ltd – The solicitors had explained that they were members of the ALP scheme and that the ATE policy was the only one that could be used. This was sufficient to comply with the Regulations. CFA valid.

Marsden v Rider Holdings Ltd – There was a declarable interest and there had been a breach of the Regulations by failing to declare it. However, the breach was not material as the interest was “de minimis”. CFA valid.

Hibberd v Fawcett Old Ltd – The potential for case referrrals was periphal to the scheme and therefore there was no interest to declare. No breach of the Regulations. CFA valid.

The difficulty that legal representatives have in advising their clients in these types of cases is obvious in light of the inconsistent decisions coming out of the Courts. This also highlights the irony of the criticism from some parts of the judiciary as to the “satellite litigation” surrounding costs. Without clear and consistent court decisions, continuing litigation is inevitable.

As we previously predicted, this issue is now to be resolved by the Court of Appeal with a number of ALP cases to be jointly heard on 17th November 2008.

Court of Appeal does it again


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In KU v Liverpool City Council [2005] EWCA Civ 475 the Court of Appeal held that a court did not have the power to award a success fee at different levels for different periods in the claim where the Conditional Fee Agreement (CFA) in question only allowed for one success fee throughout. It is therefore not open to paying parties to seek to reduce success fees for the period in proceedings, for example, after liability has been admitted. The Court of Appeal confirmed that this approach was correct, and that it applied equally to the success fee that was to be allowed in detailed assessment proceedings, in Crane v Canons Leisure Centre [2007] EWCA Civ 1352 – ie it was to be the same success fee as was to be allowed in the main proceedings.

So what exactly was a differently constituted Court of Appeal trying to say in Birmingham City Council v Lee [2008] EWCA Civ 891? They commented, without any reference to these previous decisions:

“It does not follow, as it seems to us on first impression at least, that the same level of success fee appropriate to litigation is necessarily appropriate to the making of the protocol claim. It might be, but that will depend on the realities of the position, and the risk undertaken, as at the time of advancing the claim.”

Can it now be argued that a different success fee can be applied to the pre-proceedings stage? It is this kind of ill considered judgment that itself generates so much costs litigation, but the courts continually blame defendant lawyers and insurers, rather than themselves, for these problems.

Idiot-proof CFAs – tested to destruction by idiots


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Since the CFA Regulations 2000 were revoked, on 1st November 2005, it should now be virtually impossible to enter into a defective CFA. Generally the only requirements for a CFA to be valid are that it is in writing and the success fee does not exceed 100%.

GWS were recently instructed to advise in relation to a claim funded by a post-November 2005 CFA. The agreement followed standard wording but the space in the document where the amount of the success fee was to be inserted had been left blank. Notwithstanding this, the Claimant’s solicitors initially claimed a success fee of 25%, this being an EL claim to which fixed success fees apply. The Claimant’s solicitors conceded the success fee at an early stage but maintained the claim for the balance of their costs.

GWS advised the Defendant that the CFA was defective because it is a requirement of s58(4)(b) of the Courts and Legal Services Act 1990 for a CFA which provides for a success fee to state the level of the success fee. It was clear from the CFA in question that it was indeed intended to provide for a success fee, but that amount had simply not been inserted. GWS drafted a detailed skeleton argument in support of the argument that the CFA was invalid and this was served on the other side. In due course the Claimant’s solicitors conceded that the CFA was indeed defective and dropped their claim for costs entirely.

Clearly the new CFA regime is still too onerous for some claimant lawyers. How soon before we hear demands for further simplification? Quite how much more simple it can get is hard to see.

Morgan v Llandow Metals – £160,000 costs saving


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Gibbs Wyatt Stone recently secured a costs saving of approximately £160,000 in the case of Morgan v Llandow Metals (Newport County Court).

The Claimant’s solicitors presented a Bill of Costs for approximately £160,000. An offer of £100,000 was made on behalf of the Defendant supported by an interim payment in the same sum. The offer was rejected and at this stage GWS were instructed to assist. It became apparent that there were serious problems relating to the claim for costs. These centred around myriad potential breaches of the Conditional Fee Agreement Regulations 2000 as well as serious concerns over the authenticity of the CFA document itself. The Defendant’s offer was withdrawn on the advice of GWS. Detailed assessment proceedings were commenced and the matter was referred to a Regional Costs Judge.

There followed four preliminary hearings to deal with the directions of the assessment proceedings, given the complex issues that arose, prior to the matter even being listed for a detailed assessment hearing. Specialist costs counsel acted for the Claimant and GWS for the Defendant. The matter was eventually listed for a preliminary two-day hearing to deal with some of the allegations concerning the authenticity of the CFA. However, shortly before the hearing, the Claimant’s solicitors agreed to drop their claim for costs in its entirety, repay the £100,000 and make a substantial contribution to the Defendant’s costs of assessment.

Although the facts of this case were unique, the outcome reflects the technical expertise that GWS can help bring to high value, complex costs litigation.

Jones v Wrexham Borough Council


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The central issue in Jones v Wrexham Borough Council [2007] EWCA Civ 1356 concerned the, on first sight somewhat esoteric, issue of whether a pre-November 2005 CFA amounted to a “CFA Lite”. A “CFA Lite” is defined by regulation 3A of the Conditional Fee Agreement (Miscellaneous Amendments) Regulations 2003 as being a CFA where, with limited exceptions, “the client is liable to pay his legal representative’s fees and expenses only to the extent the sums are recovered in respect of the relevant proceedings, whether by way of costs or otherwise”.

The importance of whether the agreement was to be so treated rested with the fact that Regulation 4 of the Conditional Fee Agreement Regulations 2000, which required solicitors to inform clients as to whether they had an interest in recommending a particular ATE policy, amongst other things, did not apply to “CFA Lite” agreements. If the agreement was therefore caught by Regulation 3A then it did not impact on the validity of the CFA as what information was given to the client.

The Claimant, at the same time as being sent the CFA, was sent a client care letter. This letter purported to explain the effect of the CFA. There were a number of sections within the client care letter that were not entirely at one with the actual wording of the CFA. The Claimant’s solicitors sought to argue that taken as a whole, the effect of the agreement with the Claimant was such that he would not be liable (save for the allowable limited exceptions) for any own-side costs whatever the result of the proceedings save to the extent they would be recovered from the other side or covered by his ATE insurance policy.

The Court decided that there was no reason why a court could not look at the whole package produced by the solicitor: the CFA agreement, the client care letter explaining the effect of the agreement and the ATE policy. Having done that, the Court accepted that the agreement fell within Regulation 3A. This aspect of the decision causes some potential difficulties:

1. Insofar as there was a conflict between the information contained in the client care letter and the CFA, why should the former have precedence in resolving such conflicts, which was the approach adopted by the Court?

2. In future, in detailed assessment proceedings, should defendants automatically ask for client care letters and copies of full ATE policies to determine the true effect of the CFA? Will Claimants agree to such requests? Will Claimants wait until the matter reaches court and then produce such documents to try to rescue otherwise defective CFAs? Is this decision likely to lead to further uncertainty and satellite litigation in an already troubled area?

Given the above, it was not necessary for the Court to rule on whether the CFA would have been defective if it had not been held to be a “CFA Lite”. However, they chose to do so and the decision gives helpful guidance. The issue was whether there would have been a breach of Regulation 4(2)(e)(ii) of the Conditional Fee Agreement Regulations 2000, which required a solicitor to inform a client whether he had an interest in recommending a particular ATE policy. Here the claim had been referred through a claims management company Claims Bureau UK (CBUK). The solicitors advised the client that an ATE policy with CBUK was appropriate and asserted that they had no interest in recommending the policy. In fact, the ATE policy pre-dated the date when the CFA was entered into by the client. The Court held that the requirement to give the proper advice under Regulation 4(2)(e)(ii) applied equally where there was already an existing policy in place.

The Claimant sought to distinguish the facts in this case from those in Garrett v Halton Borough Council [2006] EWCA Civ 1017 on the basis that here there was no term established that if the solicitors did not recommend the policy their membership of the CBUK panel would be terminated. Under the terms of the CBUK operations manual the solicitors were required to recommend this policy. The Court held that:

“66. … It is an obvious inference not requiring any evidence that, if solicitors ignored the operation manual and recommended a different policy from CBUK, involving cancellation of the policy already entered into with CBUK, considerable damage would be done to the solicitor’s business relationship with CBUK. An insurer in the position of CBUK in addition to receiving premiums under the policy received fees for doing the work that solicitors would otherwise do and would not view lightly a solicitor on the panel advising clients to go to different insurers.

67. In my view, Mr Bacon simply cannot distinguish this case from Garrett. The decision in Garrett was not, at least so far as the Court of Appeal was concerned, based simply on the fact that there was a term under which membership of the panel could be terminated. The language of the judgment is in general terms saying as follows (paragraph 97):

“There was a close relationship between Websters and Ainsworth. Websters were dependent on Ainsworth for referrals of cases, although it is unclear to what extent. As Mr Morgan point out, cases are the life blood of solicitors. 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 of 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 Ainsworth insurance product came in a CFA that it had apparently supplied to its panel solicitors and which bore its livery.”

In my view, the solicitors in this case clearly had an interest. It is not suggested that the fact that in some part of the CFA they disclosed that they were on the panel would be sufficient, having regard to the absolute terms in which they suggested they had no interest.”

As such, if this had not been a “CFA Lite” the agreement would have been held to be invalid. This aspect of the decision is extremely useful to Defendants. It considerably widens the scope of claims management schemes to which there will be a declarable “interest”.

Crane v Canons Leisure Centre


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The main issue considered in Crane v Canons Leisure [2007] EWCA Civ 1352 was whether the work performed by external costs draftsmen should attract a success fee. The claim had been conducted under a CCFA and, come the detailed assessment proceedings, the successful Claimant’s solicitors outsourced the work to external costs draftsmen. The Claimant’s solicitors then sought to treat the work performed by the draftsmen as forming part of their own profit costs such as to attract a success fee. The Defendant argued that the work should be treated as being a disbursement to which no success fee could be added. There was no dispute that if the work had been performed by internal costs draftsmen it would have formed part of the solicitors’ own profit costs and attract a success fee. There was also no dispute that the external costs draftsmen here would not recover the success fee themselves, this would go to the solicitors.

The decision depended on a construction of the CCFA and the definitions therein of “Base charges” as being “charges for work done by or on behalf of the Solicitors” and of “Disbursements” which were defined as “expenses which the Solicitors incur on the member’s behalf in the course of an action”.

By a two-to-one majority the Court of Appeal held that the work was to be treated as being part of the base charges and therefore attracted a success fee. In reaching this conclusion, the Court was required to make two findings:

1. That there was nothing to prevent a solicitor from delegating their own work to third parties and then charge the client a different amount, whether higher or lower, to that which they agree to pay the subcontractor. So long as the solicitor remains responsible for the work and it is work of the nature of “solicitors’ work” then it can be treated as forming part of the base costs. This part of the decision is of wider application as it gives general guidance as to the distinction between base costs and disbursements.

2. That the CCFA treated the work performed by the external draftsmen as falling within the definition of “Base charges” as opposed to “Disbursements”. This is an issue of construction and there may therefore be other CFAs/CCFAs where a different conclusion could be reached. It is interesting to note that the wording of both the old and new Law Society’s Model Conditional Fee Agreements defines “Basic charges” as being “our charges for the legal work we [emphasis added] do on your claim for damages” and deals with “Advocacy” on the basis that “the cost of advocacy and any other work by us [emphasis added], or by any solicitor agent on our behalf, forms part of our basic charges”. Would the same conclusion have been reached if one of these CFAs had been used? Although this decision is likely to be leapt on by claimants’ representatives as providing a definitive answer to the question as to whether a success fee can be charged on external draftsmen’s fees, the issue may not be quite so clear cut.

This decision does raise a number of issues of concern for defendants:

1. The potential adverse costs to which a defendant may be exposed in detailed assessment proceedings is considerably higher in light of this decision. A large number of claimant solicitors outsource costs work to external costs draftsmen and such work is now, potentially, likely to attract a success fee. (There is also a linked, and worrying, issue as to whether cases to which the fixed success fee regime now applies would have the 100% trial figure triggered, to the costs of the substantive action and/or the assessment costs, if the matter proceeds to detailed assessment. For the purposes of the rules, a “trial” is defined as including “the contested hearing of any issue ordered to be tried separately”, which could be treated as including detailed assessment.) This additional success fee to which defendants may be exposed, combined with the recent increase in the court fees for detailed assessment, highlights the importance of defendants making early and realistic settlement offers in relation to costs.

2. Given the Court of Appeal has given the go ahead to solicitors to outsource work at a lower charge, and then claim the work at a higher rate, what does the future hold? Is it easy to imagine some of the more imaginative schemes that will be set up to generate additional revenue for claimant solicitors. Will success fees now be claimed on work done by medical agencies?

3. Difficulties are likely to begin to emerge in trying to quantify the value of work done. For example, if a solicitor in Liverpool outsources work of a fee earning nature to a firm in India, what hourly rate is appropriate, even assuming that the paying party discovers what has been done?

Secondly, the Court was asked to reduce or disallow the success fee in relation to the detailed assessment proceedings on the basis that the risks attributable to detailed assessment are entirely distinct to those relevant to the substantive claim. The Court rejected these submissions and, following earlier decisions, held that there was no duty for a solicitor to set different success fees to different parts of a claim and that, unless the CFA itself was staged, the courts had no power to impose different success fees for different periods. Whatever success fee was reasonable at the outset would apply throughout, including to any detailed assessment proceedings.

Elstone v Knowles


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In our last two Costs Law Updates we reported the decisions in Myers v Bonnington Cavendish Hotel) Ltd [2007] EWHC 90077 (Costs) and McFayden v Liverpool CC (Liverpool County Court, 9/5/07). These cases also concerned alleged breaches of Regulation 4(2)(e)(ii) where the Claimant’s solicitors had recommended an ATE policy but had failed to notify the client that they had an interest in recommending the policy because they were obliged to recommend the policy as part of their membership of the Accident Line Protect scheme, a scheme which also produced referrals to the solicitors. A further decision concerning the same scheme has recently been handed down in Elstone v Knowles [2007] EWHC 90089 (Costs). It is worth comparing the outcomes of these different cases:

Myers v Bonnington (Cavendish Hotel) Ltd

There had been a breach of the Regulations due to the failure to make it clear to the client that there was an obligation on the solicitors to recommend the particular policy. However, even if the client had been informed of the interest it would have made no difference to him. Further, the interest not declared was de minimis, and the breach was therefore not material, as the referrals from Accident Line represented only 0.3% of the firm’s total income. The CFA was held to be valid.

McFayden v Liverpool CC

The Court found there was a declarable interest in that the insurance policy was recommended as a result of membership of the Accident Line panel, the solicitors received benefits from such membership and the client had no choice other than to insure with this scheme if the solicitors accepted the case on a CFA basis. These interests were not notified and the breach was material as the client was placed in a “no choice” position. The CFA was held to be invalid.

Elstone v Knowles

The evidence before the Judge as to the Accident Line scheme was limited. Based on the available evidence, it was held that the scheme was based primarily on the facility to insure clients through a delegated authority scheme. The referrals that a firm might receive were seen as additional benefits as opposed to being primary. The solicitors would have still chosen to insure through the scheme even if there had been no referrals. As such, the spectre of termination of panel membership would not arise. Therefore, there was no disclosable interest and no breach. However, if there had been a breach, it would have been material as the value of the referrals represented approximately 5% of the firms’ income. The CFA was held to be valid.

The fact that the Courts can reach such different conclusions on exactly the same scheme explains why much of the costs satellite litigation continues relatively unabated. It will be interesting to see the how the scheme is viewed in light of the tightening-up of what amounts to a disclosable interest in Jones v Wrexham Borough Council.

Willoughby v Sempra Energy Trading (UK) Ltd


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The same issue as in Bevan and McFayden, although this time with the case being referred by Accident Assurance Limited, was considered in Willoughby v Sepra Energy Trading (UK) Ltd (Liverpool County Court, 5/4/07). District Judge Smedley, sitting as a Regional Costs Judge, found that there had been a breach of Regulation 4(2)(e)(ii) in that the solicitors had incorrectly stated that they did not have an interest in recommending the policy. The Claimant here did seek to run the de minimis argument on the basis that the referrals the solicitors received from this claims management company amounted to about 40 cases compared to the 300 cases they were receiving from another scheme. In addition the firm undertook private client work.

Although the judge accepted that the referrals represented only a small proportion of the firm’s work, and that half a dozen cases in a year would be insignificant, he calculated that the income generated by the 40 odd cases must have been in excess of £50,000 which could not be considered insignificant. On that basis the breach was material and the CFA was invalid.

The number of cases where this type of challenge continues to be available (claims where the old CFA Regulations apply) is reducing over time. However, the individual value of these cases is correspondingly increasing and the success that defendants have been achieving is likely to justify such challenges continuing for the foreseeable future.