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 [2004] 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 [2007] 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 [2008] EWCA Civ 1459.

Who says that legal costs isn't exciting?  

In a previous posting (read here) I discussed the old rules relating to providing information about the funding of a claim.  The latest update to the Civil Procedure Rules has made important amendments which came into force on 1st October 2009.
 
The old CPR 44.3B read:
 
“(1) A party may not recover as an additional liability –
 
(c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order”
 
The new wording of CPR 44.3B is:
 
“(1) Unless the court orders otherwise, a party may not recover as an additional liability –
 
(c) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;
 
 
(e) any insurance premium where that party has failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order.
 
(Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) provides that a party must inform any other party as soon as possible about a funding arrangement entered into before the start of proceedings.)”
 
These changes fall into four categories:
 
1.      The wording “in the proceedings” is deleted and the reference to the new wording of the Practice Direction (Pre Action Conduct) makes it clear that notice must now be given pre-proceedings.
 
2.      The insurance premium provision deals with the consequence of not giving the information discussed below.
 
3.      The addition of the new wording “unless the court orders otherwise” is perhaps surprising. It was previously clear that failure to comply with the notification provision produced an automatic sanction in that the additional liability was not recoverable (in the absence of a successful application for relief from sanctions).  It now appears to be in the general discretion of the court as to whether to allow the additional liability despite the breach, although the starting point is obviously non-recoverability.  What is strange is that the new wording is followed by the same note that previously appeared: “Rule 3.9 sets out the circumstances the court will consider on an application for relief from a sanction for failure to comply with any rule, practice direction or court order”.  If the court now has a general discretion there would be no need to formally make an application for relief from sanctions.  Or, is the wording “unless the court orders otherwise” meant to refer to the situation where a successful application has indeed been made, but not otherwise?  We'll no doubt have to wait for the first decisions on the correct interpretation.
 
4.      The word “he” is replaced by the non-sexist “that party” (so as not to upset any chicks reading).
 
Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) now reads (amendments underlined):
 
“Where a party enters into a funding arrangement within the meaning of rule 43.2(1)(k), that party must inform the other parties about this arrangement as soon as possible and in any event either within 7 days of entering into the funding arrangement concerned or, where a claimant enters into a funding arrangement before sending a letter before claim, in the letter before claim.”
 
For the reasons I gave in the previous posting on this subject, I am of the view that these changes clarify, rather than change, the requirements concerning pre-proceedings notification (although the corresponding transitional provisions might suggest the contrary).
 
An important change has been made to the Costs Practice Direction in respect of staged After-the-Event (ATE) premiums.  CPD 19.4(3) now reads:
 
“Where the funding arrangement is an insurance policy, the party must –
 
(a) state the name and address of the insurer, the policy number and the date of the policy and identify the claim or claims to which it relates (including Part 20 claims if any);
 
(b) state the level of cover provided by the insurance; and
 
(c) state whether the insurance premiums are staged and, if so, the points at which an increased premium is payable.”
 
This finally formalises the guidance given by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134.
 
What is not 100% clear is what the consequence would be of failing to give notification of the fact the policy is staged or to give the trigger points.  Would the receiving party lose all premiums or would they still be able to recover the first stage premium (on the basis that the paying party can be no worse off in respect of this first premium even if they were not notified of the staging; the prejudice comes from not having the opportunity to settle the claim before the subsequent premiums become payable)?  More test litigation ahead for costs draftsmen and other costs professionals.
 
It should be pointed out that none of these changes affect those acting under discounted CFAs\CCFAs without a success fee (usually defendants).  There is no need to provide notice of funding in this situation because the full hourly rate payable in the event of a win is not treated as being an additional liability (see Gloucestershire CC v Evans [2008] EWCA Civ 21).
 
There are also important changes to the rules concerning ATE premiums in publication proceedings although, frankly, if you work in that niche area you should already be more than aware of those changes.
 

Click image to enlarge:

qc sept 16 97
 
 
 

The old Practice Direction - Protocols (PDP), at paragraph 4, stated:

 
"A.1 Where a person enters into a funding arrangement within the meaning of rule 43.2(1)(k) he should inform other potential parties to the claim that he has done so.
 
 
A.2 Paragraph 4A.1 applies to all proceedings whether proceedings to which a pre action protocol applies or otherwise.
 
 
(CPR rule 44.3B(1)(c) provides that a party may not recover any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order.)"
 
 
On 9th April 2009 this was replaced with the Practice Direction – Pre-Action Protocols.  The relevant section, at 9.3, is substantially the same:
 
 
“Where a party enters into a funding arrangement within the meaning of rule 43.2(1)(k), that party should inform the other parties about this arrangement as soon as possible.
 
 
(CPR rule 44.3B(1)(c) provides that a party may not recover certain additional costs where information about a funding arrangement was not provided.)”
 
 
These sections have, surprisingly, caused problems. This has been due to a conflicting interpretation as to how the word "should" ought to be understood. Is it meant to be a mandatory provision or simply a "recommendation"?
 
 
Master Campbell, in Metcalfe v Clipston [2004] EWHC 9005 (Costs), adopted the latter interpretation:
 
 
"For [the paying party] to succeed, I consider the obligation on the receiving party to give notification of funding pre issue must be absolute but in my judgment, the word ‘should’ in the PDP does not impose such an obligation. On the contrary, I would construe ‘should’ as meaning ‘ought to’ which is not the same as ‘has to’ or ‘must’. Likewise I consider that a step that is ‘recommended’ under the CPD does not involve any element of compulsion but instead means ‘favoured’. It follows that I find against [the paying party]. In my judgment, pre issue, all the CPD does is to recommend that information is provided and although Section 19.2(5) states that notification may be required by a pre-action protocol, there is nothing in the clinical dispute protocol requiring service of any information. The PDP at paragraph 4.A.1 is of no assistance either because the requirement to provide information is optional not compulsory. Nor does paragraph 4A.2 PDP assist because ‘proceedings’ means the issue of court process and not prospective proceedings."
 
 
Master Campbell reached the same decision again in Cullen v Chopra [2007] EWHC 90093 (Costs).
 
 
I have never found this reasoning remotely persuasive for a number of reasons:
 
 
  1. The word "must" is hardly ever used in the Pre-Action Protocols. The word "should" is usually used. For example: "Some solicitors choose to obtain medical reports through medical agencies, rather than directly from a specific doctor or hospital. The defendant’s prior consent to the action should be sought and, if the defendant so requests, the agency should be asked to provide in advance the names of the doctor(s) whom they are considering instructing"; "The parties should consider whether some form of alternative dispute resolution procedure would be more suitable than litigation"; "The defendant should reply within 21 calendar days of the date of posting of the letter identifying the insurer". I would suggest that it would be absurd if a party failed to comply with any of these steps but could then claim to have complied 100% with the relevant Protocol on the basis that these were meant to be no more than "recommended" steps.
  1. In the case of Crosbie v Munroe [2003] EWCA Civ 350 the Court of Appeal went out of there way to explain their interpretation of the PDP and whether the notification requirement applied pre-proceedings:
"After completing this judgment, it came to my attention that lower courts are encountering similar difficulties over the meaning of the word ‘proceedings’ as used in paragraph 4A.2 of the Practice Direction: Protocols. Although we have of course not heard argument on this point, it appears to me that this word clearly needs to be interpreted along the lines indicated in paragraph 34 of this judgment. In other words, for instance, the dealings between the parties which lead up to the disposal of a clinical negligence claim are to be treated as ‘proceedings’ for the purposes of that paragraph even if the dispute is settled without the need to issue a claim form."
 
Although these comments were clearly obiter, it would be extremely strange for the Court of Appeal to go out of its way to comment on the interpretation of a Practice Direction if failure to follow that Practice Direction had no consequences.  If there were no consequences, what were the "difficulties" that the Court of Appeal was referring to?
 
 
3.     Immediately after 4A.2 PDP is the following wording: "CPR rule 44.3B(1)(c) provides that a party may not recover any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order" (similar wording appears after 9.3 of Practice Direction – Pre-Action Protocols). The Court of Appeal, in Garbutt v Edwards [2005] EWCA Civ 1206, had this to say when trying to interpret the word “shall”:
 
"In particular, Rule 15 begins by providing that a solicitor ‘shall’ provide costs information. But, while the word ‘shall’ is often mandatory, particularly when used in legislation, it has, depending on the context, been interpreted on occasion as directory or exhortatory only: see for example R v Secretary of State for the Home Department ex parte Jeyeanthan [2000] 1 WLR 354. In Rule 15, for the reasons given below, the word ‘shall’ is not in my judgment mandatory in the sense that non-compliance with the Code will always result in a breach of Rule 15. Rule 15 must be interpreted with the Notes that appear immediately following it."
 
 
Applying this reasoning, the note immediately following the section details a specific sanction and the word "should" is therefore surely intended to be mandatory on this occasion with the consequences of non-compliance being spelt out. The alternative interpretation produces the bizarre outcome that the PDP details a sanction that only applies to a breach of a totally different rule and not anything contained within the PDP itself. If this were correct, it would be unique within the PDP or Pre Action Protocols for a sanction to be listed totally detached from the relevant rule.
 
Any confusion that existed under the previous rules has now been removed by the latest update to the Civil Procedure Rules.  I'll be posting details of these changes in the next few days on the Legal Costs Blog.

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.

Lamont v Burton

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The Court of Appeal’s decision last week in Lamont v Burton [2007] EWCA Civ 429 is likely to have serious costs implications for defendants and impact on the way personal injury claims are conducted.

The case concerned the application of the fixed success fee regime under Part 45. Although the case itself concerned an RTA the Court recognised that it had equal relevance to EL and EL disease claims that are also subject to fixed success fees.

The claim related to an accident on 10th September 2004 being conducted under a CFA and was therefore subject to the fixed success fees allowed for under CPR 45.15:

“…the percentage increase which is to be allowed in relation to solicitors’ fees is:

(a) 100% where the claim concludes at trial; or

(b) 12.5% where –

(i) the claim concludes before a trial has commenced; or

(ii) the dispute is settled before a claim is issued.”

The Defendant admitted liability early and subsequently made a Part 36 payment in the sum of £1,800 which was not accepted. The matter proceeded to a disposal hearing where the Court awarded damages of £1,774.32. The Claimant was therefore awarded his costs only up to the last date he could have accepted the Part 36 payment without needing the Court’s permission and was ordered to pay the Defendant’s costs from that date onwards.

As the matter had concluded at “trial” the Claimant sought a 100% success fee on his costs.

The Defendant argued before the trial judge, and on appeal, that the Claimant should have accepted the Part 36 payment within the time for acceptance; and that had he done so, the claim would have concluded before trial, so that the percentage increase for solicitors’ fees prescribed by CPR 45.16(b)(i) would have been 12.5%. Accordingly, it was argued that the trial judge should have exercised his discretion to allow the Claimant an uplift of 12.5% rather than the 100% claimed.

This argument was rejected by the trial judge and by the Court of Appeal on the grounds that the wording of CPR 45 is mandatory as to what success fee should be allowed and the Court has no discretion, either directly or indirectly, to award a different amount to that provided for by the rules. The wide discretion as to the order that a court can make under CPR 44(3) does not extend to making an order which circumvents CPR 45.

The Court of Appeal observed:

“Section III of Part 45 contains a carefully balanced scheme for the award of success fees in road traffic accident cases. The object of the scheme is to provide certainty and avoid litigation over the amount of success fees to be allowed to successful parties. … It is inherent in the scheme that in some individual cases, the success fee will be unreasonably high and in others unreasonably low. But that is the price that has to be paid for achieving certainty and avoiding litigation over the amount of success fees. Rule 44 cannot be invoked to circumvent the careful structure of rule 45 and to undermine its objective of achieving certainty.

One issue not considered in the judgment is the effect of CPR 44.3B which states:

“(1) A party may not recover as an additional liability –

(c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;

(d) any percentage increase where a party has failed to comply with –

(i) a requirement in the costs practice direction; or

(ii) a court order,

to disclose in any assessment proceedings the reasons for setting the percentage increase at the level stated in the conditional fee agreement.”

Do either, or both, of these rules apply to Part 45? Is the combined effect of 44.3B(1)(c) or 43.3B(1)(d) and Part 45 that although the percentage success fee that applies is fixed the period that it will be recoverable for, or whether it is recoverable at all, still requires appropriate disclosure? Alternatively, do neither of these sections apply where the success fee is fixed? Is the success fee recoverable regardless because of the mandatory nature of Part 45?

The possible impact of Lamont on future litigation tactics is significant. The following two examples give an indication of the potential issues:

Example 1

A Claimant is involved in a fast-track RTA conducted under a CFA. A month before trial the Defendant makes a Part 36 offer of £10,000 which represents a reasonable settlement. The Claimant’s solicitors have incurred base profit costs to date of £6,000. To take the matter to trial will require a further £1,000 base profit costs to be incurred by the solicitors. The Claimant’s counsel’s trial costs will be fixed at £500. The Claimant solicitors will recover the following costs if they advise the Claimant to accept the offer now:

Base profit costs – £6,000
Success fee (12.5%) – £750
Total recovered – £6,750

If the solicitors advise the Claimant to reject the offer, and the offer is not beaten, they will recover the following:

Base profit costs – £6,000
Success fee (100%) – £6,000
Total recovered – £12,000

This example ignores VAT and other disbursements. Of course, the solicitors will have “lost” £1,000 of profit costs (assuming the Claimant is not liable for the shortfall) and the £500 brief fee. In addition, there will be an adverse costs order in respect of the Defendant’s costs. Assuming that these are at the same as those of the Claimant (ie profit costs of £1,000 and counsel’s fees of £500) and assuming that the solicitors are prepared to cover the third party costs themselves this still results in a balance in their favour of £9,000 (ie £12,000 less £1,500 own “lost” costs and less £1,500 third party costs). This is £2,250 more than if they had advised their client to accept the “reasonable” offer.

Example 2

A Claimant is involved in a high value EL claim conducted under a CFA. A month before trial the Defendant makes a Part 36 offer of £100,000 which represents a reasonable settlement. The Claimant’s solicitors have incurred base profit costs to date of £50,000. To take the matter to trial will require further costs of £20,000 to be incurred, to include profit costs, counsel’s fees and disbursements by the Claimant. The Claimant solicitors will recover the following costs if they advise the Claimant to accept the offer now:

Base profit costs – £60,000
Success fee (25%) – £15,000
Total recovered – £75,000

If the solicitors advise the Claimant to reject the offer, and the offer is not beaten, they will recover the following:

Base profit costs – £60,000
Success fee (100%) – £60,000
Total recovered – £120,000

This example ignores VAT. The solicitors will have “lost” £20,000 own costs and disbursement (assuming the Claimant is not liable for the shortfall). In addition, there will be an adverse costs order in respect of the Defendant’s costs. Again, assuming that these are at the same as those of the Claimant (ie £20,000) and assuming that the solicitors are prepared to cover the third party costs themselves this still results in a balance in their favour of £80,000 (ie £120,000 less £20,000 own “lost” costs and less £20,000 third party costs). This is £5,000 more than if they had advised their client to accept the “reasonable” offer.

Of course, different examples will produce an endless number of different outcomes but the potential problems are obvious. This will often create a clear conflict of interest between a claimant’s and a solicitor’s interests. Further, a claimant solicitor only needs to succeed on a small number of cases at trial to significantly adjust the figures in their favour. Different potential conflicts arise because of the various fixed success fees that counsel in entitled to depending on the stage a case settles.

Evidence has already emerged that there has been a 37% increase in claimant solicitors issuing proceedings in low-value road traffic accident cases so as to avoid the fixed-fee payment scheme (according to a study for the Civil Justice Council). It will therefore hardly be surprising if the decision in Lamont has a significant impact on the advice given to claimants as to whether to accept late Part 36 offers. It will become increasingly important for defendants to make reasonable offers at as an early a stage as possible to give some protection. Extreme caution is needed before proceeding to trial simply on quantum.

The Court of Appeal did recognise that their interpretation of the rules was not without problems:

“…although we accept that there may well be a case for deciding that, where a claimant fails to better a Part 36 offer or payment, he should be allowed the same success fee that he would have recovered if he had accepted the offer. For the reasons that we have given, that is not the effect of the rules in their present form. It will be a matter for the Rule Committee and the Civil Justice Council to consider whether to amend Part 45 to make special provision to deal with the Part 36 issue.”

Where, for a variety of reasons, a defendant has not made a strong Part 36 offer at an early stage the only option appears to be to make an overly generous offer in settlement. If accepted, any overpayment on damages is likely to be less than the higher success fee that would otherwise be recoverable. If the offer is generous enough, then the Claimant’s solicitor may be vulnerable to a claim in negligence by his client if he does not recommended acceptance. However, whether paid out in increased damages or success fees it will produce the same result – greater cost to defendants.

This case highlights a potentially much bigger danger to defendants that does not yet seem to have been widely appreciated. The fixed success fees apply regardless of the stage at which the CFA is entered into. There is therefore nothing within the rules that prevents a claimant solicitor waiting until liability has been admitted and then entering into a CFA and claiming the fixed success fee. In RTA cases to which the fixed-fee scheme applies the success fee will apply to the full fixed fee. In other cases it will only apply to work conducted after the CFA is entered into but this is likely to represent the majority of the work if liability is admitted at an early stage and the solicitors promptly enter into a CFA. There appears to be a very real danger that even where claimant solicitors are accepting referrals under BTE insurance policies they will now routinely enter into CFAs from the stage that liability is admitted leading to significant additional costs liabilities to defendants with no corresponding risks to themselves.

The problems with the rules that this decision has highlighted requires urgent attention.

A recent decision, Various Claimants v Gower Chemicals Ltd & Others (Cardiff County Court, 28/2/07), has done much to nullify the effect of the old Collective Conditional Fee Agreement Regulations 2000. This was an appeal heard by Mr Justice Field (sitting as a County Court Judge) from a decision of Master Wright of the Supreme Court Costs Office.

The decision concerned the operation of Regulation 5 of the Regulations which states:

“(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.”

The CCFA being considered echoed the wording of the Regulations in the following terms:

“5.2 When accepting instructions in relation to any specific proceedings Thompsons must prepare and retain a written statement containing:
5.2.1 their assessment of the probability of the circumstances arising in which the success fee will become payable in relation to those proceedings (“the risk assessment”);
5.2.2 their assessment of the amount of the success fee in relation to those proceedings, having regard to the risk assessment; and
5.2.3 the reasons, by reference to the risk assessment, for setting the success fee at that level.”

The Defendants alleged that the Claimants’ solicitors, Thompsons, had breached the Regulations by failing to prepare a three-stage risk assessment in respect of each Claimant in the form envisaged by the Regulations and as required by the CCFA itself. They alleged that this was a material breach of the Regulations such as to render the retainer invalid. Alternatively that the performance of this contractual provision was a condition of the enforceability of the implemented CCFA or that the preparation and retention of a conforming risk assessment was a contractual condition precedent to formation of an individual contract of retainer.

The Claimants’ case was that the Regulations simply required the CCFA itself to contain the provision required by Regulation 5(1). There was no actual requirement that individual risk assessments also had to be prepared that complied.

The Judge accepted the Claimant’s arguments. In his judgment:

“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… As Lord Philips remarked in Thornley, there is an obvious reason why the CCFA Regulations are less exacting than the CFA Regulations. In contrast to the latter, whose object is to protect the lay client who is contemplating entering into a CFA, the former are concerned with bulk purchasers of legal services who are less vulnerable.”

In his judgement a breach of the requirement may give rise to a right to the funder to terminate the CCFA, rely on the breach as a defence to a claim by the solicitor for costs and to a right to claim damages. Further, the requirement was not a condition precedent to the formation of an individual contract of retainer but was simply an innominate term. The Judge was satisfied that his conclusions did not produce an absurd result.

The Court of Appeal, when considering whether an alleged breach of the CFA Regulations 2000 or the CFA Order 2000 invalidated the retainer, held that the proper test was whether the particular breach “had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?”. It would therefore appear that when attempting to interpret the purpose of any of the individual CFA or CCFA Regulations this should be done by determining which of these two aims it is designed to cover.

The requirement in Regulation 5(1) of the CCFA Regulations does not appear to serve any obvious purpose in terms of the protection afforded to the client. The provision is surely aimed at the administration of justice in that the preparation of a proper risk assessment is crucial to assist in determining at detailed assessment whether a success fee has been set at a reasonable level at the time the instructions are accepted. The interpretation of the Regulation in Gower totally undermines any such protection to the administration of justice. Any contractual right that the funder may have is of no assistance to the Court attempting to assess a success fee in the absence of a proper risk assessment.

If this interpretation is correct it creates an equally surprising result in respect of Regulation 4(2) which states as follows:

"A collective conditional fee agreement must provide that, when accepting instructions in relation to any specific proceedings the legal representative must -

(a) inform the client as to the circumstances in which the client may be liable to pay the costs of the legal representative"

This Regulation closely mirrors Regulation 2(1)(b) of the CFA Regulations and is clearly aimed at the protection afforded to the client. However, the Gower interpretation would mean that this Regulation is complied with simply by the CCFA stating that the client will be appropriately informed. There is then no duty to actually give any information at all to the client. This outcome certainly appears to the writer to produce an absurd result. It will be interesting to see if this matter proceeds to the Court of Appeal. Unless and until that happens the CCFA Regulations 2000 are dead in the water so far as defendants are concerned.

Jones v Caradon Catnic Ltd

Filed Under Uncategorized | 2 Comments

A success fee set at over 100% represents a material breach of the conditional fee agreement rules declared the Court of Appeal in an important decision that appears not to have received the attention which it clearly deserved.

In the case of Jones v Caradon Catnic Ltd [2005] EWCA Civ 1821 the Court was faced with a case run under a CCFA where the solicitors, Thompsons, had prepared a risk assessment, in June 2001, seeking a success fee of 120%. It was argued for the Defendants that this exceeded the Conditional Fee Agreements Order 2000 and that because it was not compliant with the Order the CCFA was unenforceable.

The Claimant argued that there had been no breach as the CCFA itself stated that the success fee “in no case will be more than 100%” and that this therefore operated over the defective risk assessment. Secondly, even if there were a breach, it was not material as there was no danger of more than 100% being enforced by the courts and therefore there was no prospect of either the client or defendant suffering.

The Court rejected those submissions and found that there was a clear breach of the Order. Because of the operation of the CCFA, the breach would not have an adverse effect on the protection provided to the client. Therefore, the Court’s attention should be devoted to the administration of justice when determining whether the breach was material. It was accepted that the maximum success fee was plainly central to the regime on which lawful CFAs or CCFAs were made. Ignoring this provision, even if the result was that no one was a loser, was inimical to the administration of justice. The CCFA was therefore found to be unenforceable.

The judgment contained some interesting comments concerning the recent changes to the CFA/CCFA regulations. It was recognised that the statutory scheme had now been revoked and that there were no longer any regulations concerned with consumer protection, which was now dealt with by the Law Society’s disciplinary mechanisms. However, so far as the administration of justice was concerned, that side of the statutory scheme has not been revoked and was still in force. Therefore it seems that the same decision would have been reached had the CFA/CCFA been made under the new regime.

This case is worth studying closely due to the evidence that emerged as to how Thompsons’s risk assessments were produced.

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