The, now revoked, Collective Conditional Fee Agreement Regulations 2000 state:
“5. (1) Where a collective conditional fee agreement provides for a success fee the agreement must provide that, when accepting instructions in relation to any specific proceedings the legal representative must prepare and retain a written statement containing -
(a) his assessment of the probability of the circumstances arising in which the percentage increase will become payable in relation to those proceedings (“the risk assessment”);
(b) his assessment of the amount of the percentage increase in relation to those proceedings, having regard to the risk assessment; and
(c) the reasons, by reference to the risk assessment, for setting the percentage increase at that level.”
In Various Claimants v Gower Chemicals (Cardiff County Court, 28/2/07) the paying party sought to argue that a failure to prepare a statement of reasons in accordance with Regulation 5(1) rendered the retainer invalid and all costs should therefore be disallowed. That argument was rejected on the basis that “the natural and ordinary meaning of the regulation is that there must be a provision in a CCFA that complies with the specification set out in the regulation. Regulation 5(1) does not additionally require that the prescribed provision must be performed”.
Is that an end to the story? Not quite. The ever ingenious Gibbs Wyatt Stone recently acted for the Defendant in an EL claim (Middleton v Mainland Market Deliveries Ltd (Southampton CC, 20/10/09)). The Claimant’s Bill claimed a 100% success fee on the basis that the fixed EL success fees had been applied to the case when the claim was accepted under the CCFA and the matter had settled at trial. In fact, the date of the accident was such that it did not fall within the fixed success fee regime. The judge accepted that fixed success fees did not apply as a matter of law and that the Court could not simply adopt the fixed success fee figures when assessing the success fee in this case (see Atack v Lee  EWCA Civ 1712).
Costs Practice Direction 32.5(1)(b) requires a receiving party to serve with his Bill:
“a statement of the reasons for the percentage increase given in accordance with Regulation 3(1)(a) of the Conditional Fee Agreements Regulations or Regulation 5(1)(c) of the Collective Conditional Fee Agreements Regulations 2000. [Both sets of regulations were revoked by the Conditional Fee Agreements (Revocation) Regulations 2005 but continue to have effect in relation to conditional fee agreements and collective conditional fee agreements entered into before 1st November 2005]”
The Claimant in this case had served a document, prepared at the time the case was accepted, that gave a detailed analysis of the various strengths and weaknesses of this case and then stating that the success fee would be 27.5% if the claim settled pre-trial of 100% if settled at trial.
However it was argued for the Defendant that this document did not properly comply with the requirements of 5(1)(c). That section required “the reasons, by reference to the risk assessment [emphasis added], for setting the percentage increase at that level”. Because the solicitors had simply adopted the fixed success fees, they had not undertaken the “risk assessment” required by 5(1)(a). Regulation 5 is a 3-stage process. To comply with 5(1)(c) requires the earlier steps to have also been undertaken. As such, it was argued there was a breach of CPD 32.5(1)(b) and that, by virtue of CPR 44.3B(1)(d)(i), the success fee was therefore not recoverable.
This was a different argument to the one run in Gower Chemicals. That argument was based on there being a breach of the CCFA Regulations which rendered the whole retainer invalid and all costs being irrecoverable. The argument advanced in this case was not that there was a breach of the Regulations, but that there was a breach of the detailed assessment disclosure requirements and the success fee alone was irrecoverable.
The judge accepted the Defendant’s submissions and disallowed the success fee.
If this decision were to be followed by other judges, a very large number of other cases would potentially be affected. A large number of “risk assessments” prepared in CCFA cases do not strictly follow the 3-stage process. Interestingly, there is a possible argument that the requirement to comply would have existed even if this was a fixed success fee case. The CCFA in place pre-dated the revocation of the Regulations (as most still do). There is nothing in CPD 32.5(1)(b) that disapplies the rule in fixed success fee cases. Although Lamont v Burton  EWCA Civ 429 and Kilby v Gawith EWCA Civ 812 are authority for the proposition that the courts have no discretion as to whether to allow fixed success fees, does this extend as far as overriding the disclosure or notification requirements? If a party fails to comply with CPD 19.4(1), for example, surely they can’t recover the success fee notwithstanding that it is a fixed fee case. Does this also apply to CPD 32.5(1)(b) in its current form?
In the same case, Counsel had entered into his CFA after liability had been admitted. The CFA did not put Counsel at risk in relation to Part 36 offers (despite his risk assessment being prepared on the mistaken basis that it did). Nevertheless, the fixed success fee figures had also been applied producing a claim for 100% as the matter proceeded to trial. The judge accepted that the success fee should be reduced to the 5% figure suggested in paragraph paragraph 24 of C v W  EWCA Civ 1459.
Who says that legal costs isn’t exciting?