Elstone v Knowles

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.