Accident Line Protect
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  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financial interest in recommending the policy, because if they did not do so they would have their panel membership withdrawn.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.