51st Update to the CPR - 4

More on the 51st Update to the Civil Procedure Rules. The changes came into force on 6 April 2010.

The big changes relate to CPD 32.5 and the documents to be served with a bill where there is an additional liability.  These changes are to finally get the rules up to speed with the revocation of the Conditional Fee Agreement Regulations 2000 and Collective Conditional Fee Agreement Regulations 2000.

These merit being recited in full:

(b) where the conditional fee agreement was entered into before 1st November 2005, a statement of the reasons for the percentage increase given in accordance with regulation 3(1)(a) of the Conditional Fee Agreements Regulations 2000 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.];

(c) where the conditional fee agreement was entered into on or after 1st November 2005 (except in cases where the percentage increase is fixed by CPR Part 45, sections II to V), either a statement of the reasons for the percentage increase or a copy of the risk assessment prepared at the time that the conditional fee agreement was entered into;

(d) if the conditional fee agreement is not disclosed (and the Court of Appeal has indicated that it should be the usual practice for a conditional fee agreement, redacted where appropriate, to be disclosed for the purpose of costs proceedings in which a success fee is claimed), a statement setting out the following information contained in the conditional fee agreement so as to enable the paying party and the court to determine the level of risk undertaken by the solicitor—

(i) the definition of ‘win’ and, if applicable, ‘lose’;

(ii) details of the receiving party’s liability to pay costs if that party wins or loses; and

(iii) details of the receiving party’s liability to pay costs if that party fails to obtain a judgment more advantageous than a Part 36 offer.

There are no doubt a number of claimant representatives who are struggling to understand the section in brackets that says: “the Court of Appeal has indicated that it should be the usual practice for a conditional fee agreement, redacted where appropriate, to be disclosed for the purpose of costs proceedings in which a success fee is claimed”.  When did the Court of Appeal say that?  In Hollins v Russell [2003] EWCA Civ 718.

Given the reluctance of so many claimants to disclose their CFAs I can only assume that there are a significant number of claimant representatives out there who fall into one of three categories:

1. Those who have never heard of Hollins v Russell.
2. Those who have heard of it but haven’t bothered to read it.
3. Those who have heard of the case and have read it but didn’t understand all the long words.

Doesn’t Hollins v Russell say that a CFA should only be disclosed it there is a “genuine reason”?

No.  No.  No.

The case considered disclosure of two types of document.  The first type was the CFA itself.  That should normally be disclosed (see paragraph 80).  On the other hand, attendance notes only need to be disclosed if there is a “genuine issue as to whether there was compliance with regulation 4” (paragraph 81).  The distinction between the two is made clear at paragraph 220:

“So far as matters of procedure are concerned, we consider that it should become normal practice for a CFA to be disclosed for the purpose of costs proceedings in which a success fee is claimed. … Attendance notes and other correspondence should not ordinarily be disclosed, but the judge conducting the assessment may require the disclosure of material of this kind if a genuine issue is raised. A genuine issue is one in which there is a real chance that the CFA is unenforceable as a result of failure to satisfy the applicable conditions.”

For completeness, here is paragraph 82:

“Although the procedure envisages that the costs judge will put a party to her election as to the disclosure of the CFA, now that it is clear from our judgment in this case that this is to be the general practice, we hope that receiving parties will disclose the CFA without more ado. It would obviously lead to further costs and delay if receiving parties were to take an unreasonable view on this issue.”

So, the next time you are asked to disclose a copy of your CFA don’t refuse on the basis that the defendant has failed to raise a genuine issue.  You just make yourself look stupid.

The interesting thing to note about the new rules is that they sensibly state that a statement of reasons or risk assessment does not need to be served for CFAs entered into on or after 1 November 2005 where the success fee is fixed by CPR Part 45, sections II to V.  However, there is no corresponding concession for CFAs entered into pre-1 November 2005.  Even if the case is subject to fixed success fees, if the CFA/CCFA pre-dates 1 November 2005 (which with CCFAs will usually be the case) there is still a requirement to serve the relevant statement.  And will all know what the consequence is of failing to follow the rules properly.

Jackson Report - Success fees

Arguably, Lord Justice Jackson's most significant recommendation, in his Final Report, is an end to recovery between the parties of success fees.

This proposal will lead to obvious and huge savings to defendants.  Those who think that current political uncertainty will lead to much of the Report being shelved should think again.  Whichever party is in power after the general election, there will be a pressing need to control public expenditure.  In terms of the money paid out by the NHSLA alone, and ignoring all the other areas where the public purse pays for litigation, this will be a compelling reason to adopt this recommendation.  This is great news for defendants but really bad news for claimant lawyers.

Yes, solicitors can still enter into CFAs with their clients and charge a success fee.  But there are two big problems.  Firstly:



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Heavy advertising in recent years telling potential claimants that they will keep 100% of their damages will make it very unattractive for claimant solicitors to now start taking a cut of their clients' damages.  There will be enough firms who decide to take the hit themselves that others will be forced to follow.  Success fees in personal injury claims are likely to disappear.  For the lower-end RTA claims, the loss of the 12.5% success fee will not be dramatic but it will come straight from solicitors' profit margins.  It is likely to discourage some claims from being pushed to trial where the incentive of the automatic 100% success fee will disappear.  On the other hand, the removal of the 100% threat will encourage defendants to take more cases to court, especially in relation to quantum disputes.

Even if firms do feel able to charge success fees, Jackson LJ's proposed cap will limit to a large extent the amount that can be charged.  Not only is a cap of 25% of damages recommended, but Jackson LJ's master-stroke is that this cap will exclude damages referable to future loss.  The element of damages that claimants will be required to pay as success fee will be limited to the general damages and past losses.  In heavy litigation, and in particular catastrophic injury and clinical negligence claims, the cap is going to bite significantly in a high proportion of claims.  This will have a big impact on profit margins for some firms.

The claimant lobby has been arguing that this proposal will reduce access to justice.  This argument fails for a number of reasons.  These proposals largely revert the position to the one that existed prior to the Access to Justice Act 1999.  As Jackson LJ happily notes: "During 1996 APIL confirmed that those arrangements provided access to justice for personal injury claimants and that those arrangements were satisfactory".  He further notes: "In this regard, it is significant that in Scotland personal injury cases are conducted satisfactorily on CFAs, despite the fact that success fees are not recoverable".  Until recently, most BTE work and trade union work was conducted on unwritten speccing arrangements.  It is not obvious that recoverability of success fees brought about an increase in the kind of claim that was pursued.  The same kind of claim will still be run but the profit margins will shrink.

The Jackson package, and in particular this recommendation, is designed, at least in relation to personal injury work, to reduce legal costs at the expense of claimant lawyers.  And that can be no bad thing.

Regulation 4(2)(c) lives on

Under the old Conditional Fee Agreement Regulations 2000 a solicitor had a duty, before entering into a CFA, to inform the client “whether the legal representative considers that the client's risk of incurring liability for costs in respect of the proceedings to which agreement relates is insured against under an existing contract of insurance” (Regulation 4(2)(c)).  Failure to comply would generally render the CFA unenforceable (see Myatt v National Coal Board [2006] EWCA Civ 1017). 

The CFA Regulations have now been revoked.  Does that mean that a powerful weapon has been lost to defendants and that sloppy claimant solicitors can rest easy?  Not necessarily.  A fascinating decision has recently emerged from the Senior Courts Costs Office that suggests this issue may still be a live one.

The decision in Thomas v Butler and Other T/A Worthingtons Solicitors [2009] EWHC 90153 (Costs) concerned a solicitor/own client assessment but there is no reason to suppose the decision would have been any different if this had been an inter partes assessment.  The key issue that arose was whether the solicitors had complied with their duties under the Solicitors Costs Information and Client Care Code 1999 that was in force at the time (and remained in force until 30 June 2007) which states:

“4. Advance costs information – general

The overall costs

(a) The solicitor should give the client the best information possible about the likely overall costs, including a breakdown between fees, VAT and disbursements.

....

Client's ability to pay

(j) The solicitor should discuss with the client how and when any costs are met, and consider:

(i) whether the client may be eligible and should apply for legal aid (including advice and assistance);

(ii) whether the client's liability for their own costs may be covered by insurance;

(iii) whether the client's liability for another party's costs may be covered by pre-purchased insurance and, if not, whether it would be advisable for the client's liability for another party's costs to be covered by after the event insurance (including in every case where a conditional fee or contingency fee arrangement is proposed); and …”

Having considered the evidence presented, Master Campbell concluded:

“Having considered this course of events revealed by the contemporary documents, I am satisfied that Worthingtons [the Claimant’s solicitors] did not comply with the Code and I reject Mrs Nicholaou's [the fee earner] evidence that she used her “best attempts to ‘discover’ pre-existing legal expenses insurance, none was identified” as the points of reply contend.  Whilst it may be correct that Mrs Nicholaou examined Mr Thomas' home insurance policy for LEI cover and found none, Mrs Nicholaou knew from the papers she had received from Irwin Mitchell that there was a policy with Lawclub.  Accordingly she had a duty under paragraph 4(j) (ii) and (iii) of the Code to explore that policy further.

…

In breach of the Code, Mrs Nicholaou failed to discuss funding options adequately and compounded the problem by omitting to contact Lawclub.

…

It follows, for the reasons I have given, that I consider that Worthington's costs have been unreasonably incurred in this case. Had Mrs Nicholaou followed the Code correctly and investigated the availability of the Lawclub policy as Mr Thomas had instructed her to do, he would not have been obliged to meet Worthington's costs out of his own pocket; either the firm would have acted for him under a CFA backed by Lawclub or he would have taken his case elsewhere to another firm which would have done so. Under CPR 44.4(1) the court “will not allow costs which have been unreasonably incurred.”  Accordingly, the fees that have been unreasonably incurred must be disallowed and any sums that Mr Thomas has paid to Worthingtons fall to be returned to him with interest.”

(One odd thing to note about this judgment is that the Code states that certain information “should” be discussed.  Not “must”.  Master Campbell has previously interpreted “should” as being no more than a recommendation (see Metcalfe v Clipston [2004] EWHC 9005 (Costs) and Cullen v Chopra [2007] EWHC 90093 (Costs).  On this occasion he appears to have treated “should” as introducing a mandatory requirement.) 

If correct, not only does this decision reintroduce Regulation 4(2)(c) challenges by the back door but throws open a whole host of other challenges for failure to comply with the Code.  Although the 1999 Code is no longer in force, similar requirements now appear in the Solicitors' Code of Conduct 2007.

One should perhaps be cautious about reading too much into this case as it was very fact specific.  What was no doubt at the front of Master Campbell’s mind was the fact that the Claimant had given clear instructions that he wished his claim to be dealt with by way of a CFA backed by his legal expenses policy.  This was not done. 

However, it has been a question that has long troubled legal costs practitioners as to whether switching the consumer protection element from the Regulations to the solicitors’ rules really ended the scope for challenges.  As Cook on Costs 2010 puts it:

“It is supremely optimistic to hope that transferring regulation to the SRA will put an end to future costs satellite litigation.  If the solicitor contravenes the code of conduct, which has the same statutory force as the revoked regulations, cannot the client still contend that the retainer is unenforceable … thereby enabling the paying party to rely on the indemnity principle to avoid liability for payment?”

Happy days are here again.

A working alternative to recoverable success fees?

As the tension mounts as to what might be going through the mind of Lord Justice Jackson as he prepares his final report on his civil costs review, might he be influenced by the litigation landscape north of the boarder?  The recently published Report of the Scottish Civil Courts Review states that the majority of damages claims in Scotland are pursued on the basis of "speculative fee arrangements" (no win, no fee agreements).  This is despite the fact that: "Unlike in England and Wales, success fees and ‘after the event’ insurance premiums are not recoverable and will have to be paid by a successful [claimant] from the damages recovered, unless they are waived or absorbed by the [claimant's] solicitor".  Jackson LJ's Preliminary Report raises a number of concerns about the English system of recoverable success fees and ATE premiums.  If non-recovery seems to work in Scotland, why not here?

And while Jackson LJ may be looking north of the boarder, they are looking back.  The Scottish report concludes: "We have given careful consideration to the use made of speculative fee arrangements in this country and the experience of conditional fee agreements in England and Wales. We consider that it would be premature to recommend any changes to speculative fee agreements as they are presently constituted in Scotland. The civil costs review in England and Wales chaired by Lord Justice Jackson should be monitored for its research findings and its conclusions"

Deep-fried Mars Bar anyone?

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Challenging success fees

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?  

Notification of funding - The New Rules

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 1^st 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.

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Notification of funding - The Old Rules

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 9^th 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.

2. 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.

Successful Conditional Fee Agreement challenge

Most Conditional Fee Agreement (CFA) challenges follow a well-trodden path. However, occasionally a new variation arises where there is no authority directly on all fours. This happened in the recent case of Smith v Carpetright plc, heard by Regional Cost Judge Sparrow in Norwich County Court.

The Claimant had entered into a CFA with Godfrey Morgan solicitors. It was a condition of the, now revoked, CFA Regulations 2000 that for a CFA to be valid the solicitor must advise the client, before the CFA is entered into, whether they recommend a particular method of funding the claim and if they recommend a particular ATE insurance policy their reasons for doing so.

The CFA in question recommended an ATE policy with Amicus. Witness evidence was served during the detailed assessment proceedings that stated that this was the policy that was also orally recommended to the client. However, the CFA itself then went on discuss an Accident Line Protect insurance policy and stated that such policies are "only made available to you by Solicitors who have joined the Accident Line Protect Scheme".

Gibbs Wyatt Stone acted for the Defendant and argued that there had been a breach of the Regulations in that it was inherently confusing as to which policy was being recommended (whether an Amicus policy or an Accident Line Protect policy) and that there had been a total failure to explain why the Amicus policy was being recommended, if it was, given the only details given had related to the Accident Line Protect policy.

The Judge held that there was real confusion in the written CFA as to what was being recommended and the likelihood was that anybody reading the CFA would consider that Amicus and Accident Line Protect were one and the same. Regardless of whether or not clear oral advice had been given, the Regulations required the advice concerning the ATE recommendation to be in writing and this had not been clearly done. This amounted to a breach which undermined consumer protection and was therefore a material breach. The CFA was held to be invalid and costs of over £90,000 were disallowed.

The Claimant is appealing this decision.

Impressive CFA success rate?

The Claims for you (a trading name of Wixted & Co solicitors) website claims that they succeed in 98% of their accident claims. If true, this is an impressive success rate. However it does raise a number of issues:

1. Is this success rate not a reflection of the quality of the lawyers who work for this firm but rather a reflection of how risk adverse they are? Do they only take on cases they consider to be dead certs and wouldn't touch with a ten-foot barge pole anything that looks as if it has the slightest chance of failure?
2. If this level of success is even remotely typical of personal injury firms, where on earth did the fixed success fee figures come from? The ready-reckoner produces a success fee of 2% where the prospects of success are 98%, but the fixed success fee for even straightforward RTAs that settle pre-trial is 12.5%.
3. For non-fixed success fee claims, what level of success fee does this firm claim? What do they argue on detailed assessment to support their success fees? Do they claim an average success fee of 2% to reflect their success rate? If any readers of the Legal Costs Blog have any recent experience, let us know.
   

Tranter v Hansons (Wordsley) Ltd - Duty to investigate BTE

Under the, now revoked, CFA Regulations 2000 there was a duty to advise a client whether the legal representative considered that the client was insured under an existing contract of insurance (BTE) before the CFA was entered into (Regulation 4(2)(c)). Failure to do this would render the CFA invalid.

Since the Court of Appeal decision in Sarwar v Alam [2001] EWCA Civ 1401, if not before, it has been common knowledge that motor policies commonly contained BTE cover available for the benefit of passengers, even if the potential claim is against the insured driver. Therefore, failure to consider whether a passenger may have the benefit of BTE cover available through the defendant driver may amount to a breach of the Regulations.

A subtle variation of this issue arises where the claimant was a passenger on a bus and the accident was caused by the negligence of the bus driver. It has been common, for a number of years, for such BTE cover to also be attached to bus companies' motor insurance.

There have now been a number of decisions covering this issue and exploring whether a failure to make appropriate enquiries of the defendant bus company as to whether such cover was available would invalidate the CFA.

In Cochrane v Chauffeurs of Birmingham (Central London CC) 22/6/07, Donaldson v Four Square Coach Company (Huddersfield CC) 11/6/07 and Robinson v Doselle (Milton Keynes CC) 19/12/05 the courts held on each occasion that there had been a material breach of the Regulations.

The one case that went against the flow was the decision of Master Rogers in Dole v ECT Recycling Ltd [2007] EWHC 90086 (Costs). In that case the Claimant's solicitors put forward witness evidence that stated: "I confirm that as at the date when the CFA was signed in this case (15/07/2004) it was not common knowledge that the bus companies would have been covered by Before the Event Legal Expenses insurance which would have been available for passengers to sue the bus company for the negligent driving of its own drivers". The Defendant did not put forward any evidence to counter this claim. Master Rogers held: "I accept the clear conclusion from Mr Bennett's uncontradicted evidence that the state of knowledge of solicitors specialising in this field in the summer of 2004 was not that the defendants to a claim of this nature might have passenger cover, and in particular that such cover would be dealt with independently of any claim made against them by the passenger." He therefore concluded that the reasonable enquiries that a solicitor was expected to undertake would not have extended to considering whether BTE cover was available in this situation as they would not have known such cover might be available.

The latest decision on this issue is that of Tranter v Hansons (Wordsley) Ltd [2009] EWHC 90145 (Costs). The Claimant's solicitors produced a witness statement that stated: "I confirm that as at the date when the CFA was signed in this case (14/04/05) and based on my experience in the personal injury field, it was not common knowledge in the industry that a bus company would have applied Legal Expenses Insurance to the passengers on a bus to sue itself".

Master Wright nevertheless concluded: "In my judgment the Defendant has raised a genuine issue and I consider that the Claimant's solicitors in this case have failed to comply with Regulation 4(2)(c) of the CFA Regulations 2000. Whether or not it was common knowledge in the industry at the date the conditional fee agreement was signed that a bus company would have applied legal expenses insurance to the passengers on a bus to sue itself, it certainly was common knowledge that motor insurance policies frequently provide insurance cover for passengers to enable them to sue the driver. This is clear from Sarwar v Alam where the judgment of the Court of Appeal was given in 2001. In my judgment there is no justification for making a distinction between private motor insurance policies and insurance policies taken out by the operators of public vehicles such as buses. ... In the present case the Claimant's solicitors knew (or ought to have known because of the Court of Appeal's decision in Sarwar) that private motor insurance policies often contained provisions which protect passengers. They ought also to have anticipated that in the case of public vehicles (such as buses) there could be similar provisions in the insurance policies taken out by the operators of such vehicles. They should have taken reasonable steps (a letter or two would have sufficed) to enquire. However they did not do this".

The CFA was therefore held to be invalid.

Advising on success fees

Advising clients on the level of success fee that might be allowed in any given case is an inherently difficult task given the unpredictability of the courts. Another reason why it is difficult to advise is due to the method by which success fee are normally calculated. The courts generally accept, as a starting point, the "Ready Reckoner" (see for example paragraph 4 of Atack v Lee [2004] EWCA Civ 1712). This allows for a calculation that, based on the prospects of success fee in any given case, produces the correct level of success fee to reflect that risk. The difficulty with the figures produced by this method is that a tiny change in the prospects of success can produce a radically different success fee. For example, a case with a 50% chance of success produces a 100% success fee. A case with a 60% chance of success produces only a 67% success fee. Therefore even a very small difference in a judge's assessment of the prospects of success can radically alter the amount that can be allowed on a bill. How can one accurately advise a client as to what a judge is likely to allow?

Gibbs Wyatt Stone were instructed in relation to a case concerning a claimant who had tripped over a defective paving stone. This type of claim is generally recognised as not being straightforward due to the availability of a s58 statutory defence. However, the typical difficulty still arose as to what figure to recommend in relation to the level of success fee. In the event, GWS advised that the Defendant's offer of £14,500, made prior to a formal Bill being served, provided reasonable protection. A formal Bill was served and the matter proceeded to detailed assessment in the Supreme Court Costs Office. The matter was heard by Principal Costs Officer Lambert. He assessed the prospects of success at 65% and, using the "Ready Reckoner", allowed a success fee of 55%. Taken together with the other reductions made, the Bill of Costs was reduced from £35,150.50 to £13,991.83. The Defendant therefore succeeded on its offer and was awarded the costs of the detailed assessment proceedings.

The Claimant was unhappy with the success fee allowed and appealed to a Costs Judge. An odd aspect of appeals from a Costs Officer to a Costs Judge, in addition to there being an automatic right of appeal, is that such an appeal is by way of a complete rehearing rather than a straight appeal. This means that the Costs Judge will consider the matter afresh rather than simply decide whether to uphold or overturn the Costs Officer's decision.

The "appeal" was heard by Master O'Hare who decided not only that the Costs Officer's assessment of the prospects of success had not been unduly low but had actually been too high. He assessed the prospects of success at 67% and, based on the "Ready Reckoner", this reduced the success fee to 50%, which was what he allowed. The Claimant's appeal therefore not only failed but resulted in a further reduction to the amount which had originally been awarded. The Defendant was awarded the costs of the appeal.

Until fixed success fees are introduced for this type of case, costs draftsmen and other costs professionals will continue to struggle to advise their clients in these claims.

Jackson Costs Review – Part 4 – Legal Expense Insurance and Success Fees

Lord Justice Jackson's Preliminary Report on Civil Litigation Costs reaches a “tentative conclusion” that: “It seems to me to be in the public interest to promote a substantial extension of BTE insurance, especially insurance in the category BTE1 [Before-the-Event legal expense insurance where insurers pay solicitors to act for the insured when a claim arises]. The cost of litigation in any year by the few insured who need to bring or defend claims will then be born by the many who do not”. The Report records the Bar’s CLAF Group proposal that BTE insurance should be compulsory for motorists (to cover themselves and anyone they may injure), employers and occupiers of buildings (again to cover themselves, employees, visitors or customers). Jackson LJ states that this proposal “merits serious consideration”. The impact of such a proposal if implemented would be, by implication, to largely kill off CFAs and ATE insurers.

In a previous posting I wrote on the subject of Jackson LJ’s proposals for ending two-way costs shifting and moving to one-way costs shifting, at least for personal injury work. The Report comments: “It is, however, worth noting that if cost shifting against claimants were to be abolished, the main purpose of ATE insurance premiums would also disappear”.

Jackson LJ’s expresses the view: “If any layer of activity can be removed from the process (and insurance against adverse costs liability is one layer of activity), it may be thought that this will serve the public interest”. ATE insurers have previously been very successful in lobbying to protect their place in the current costs system. They may well have their work cut out now to maintain the status quo.

Even if costs shifting were to remain unaltered, Jackson LJ nevertheless is considering: “whether success fees and ATE premiums should continue to be recoverable under costs orders”. This would potentially return the position to the pre-April 2000 one where any success fee or ATE premium was payable out of the claimant’s damages. One option that Jackson LJ seems to be considering, and for which he asked for further assistance at the Sweet and Maxwell Conditional Fee Agreement Conference in May, is whether to increase damages to a level that enables a return to the 25% cap on the amount of damages that solicitors can take from their client’s damages, so that claimants would be no worse off than under the current system.

Costs assessment not a "trial"

The ingenuity of parties to litigation when it comes to arguments over legal costs knows no limits.

The fixed success fee regime which applies to new RTAs allows solicitors a success fee of 12.5% if "the claim concludes before a trial has commenced or the dispute is settled before a claim is issued" or 100% "where the claim concludes at trial". The same rules, but with different figures, apply to new EL and EL disease cases. A "trial" is defined as being "the final contested hearing or the contested hearing of any issue ordered to be tried separately".

Some claimant solicitors seeking to maximize their success fees have sought to argue that if a matter proceeds to assessment of the costs then that is a "trial" and their costs therefore attract the 100% success fee even if the substantive claim settles pre-trial. This was the situation that arose in the case of Thenga v Quinn [2009] EWCA Civ 151 (Lawtel link). Judgment was entered in default for the claimant. The matter was listed for an assessment of damages hearing but quantum was agreed before the hearing and the defendant agreed to pay the claimant's costs. The matter was proceeding in Bury County Court where a practice has apparently developed of cases not being removed from the list but remaining listed to enable a summary assessment to take place. (Considerable doubt was expressed by Lord Justice Wilson as to the appropriateness of this practice given summary assessment is only meant to be conducted by a judge who has heard the actual case.) The case therefore proceeded to a summary assessment where the judge at first instance was persuaded that this therefore amounted to a "final contested hearing" and a 100% success fee applied.

On appeal, the circuit judge disagreed with this conclusion and held that the summary assessment was not part of the "final contested hearing", the claim had been settled before a trial had commenced and the success fee was limited to 12.5%. Lord Justice Wilson, refusing permission to appeal, agreed with the circuit judge and concluded that it was clear that "final contested hearing" relates to the substantive claim (although would include a disputed hearing as to whether to award a party costs in principle).

This is a sensible decision which slaps down at least one of the perverse outcomes the fixed success fee regime had potentially thrown up.

Hourly Rates and the RPI

The constant refrain from claimant representatives whenever a paying party seeks to question the accuracy of a bill of costs is that one should not seek to go behind the signature to the bill unless there is a "genuine issue" as to whether the bill is accurate, and the case of Bailey v IBC Vehicles Ltd [1998] EWCACiv 566 is cited in support. I'll save for another day a full scale rant as to how misplaced the Bailey approach is.

However, one simple example of how naive the Bailey decision is can been seen on a daily basis following the routine disclosure of CFAs. I'm not now talking about whether the solicitor really has managed to comply with the onerous requirements of the now revoked CFA Regulations 2000. The issue I have in mind is the rather more straightforward one of the hourly rates claimed. A CFA will usually set out the hourly rates that are to be charged. However, the rates claimed in the corresponding bill often bear no relationship to the rates allowed for in the CFA itself. At its most basic, this is often an example of bills being signed without the slightest concern for accuracy or the indemnity principle. I don't trust signatures on bills due to years of experience in the costs world.

A more subtle issue arises in relation to increases in the hourly rate. A common clause in many CFAs, and this follows one version of the Law Society's Model CFA wording, is: "We will not increase the rate by more than the rise in the Retail Prices Index". Despite this clear and unambiguous wording, bills are routinely presented where the hourly rates increases year-on-year by more than the RPI increase. When challenged, the response from some claimants is that they wrote to the client informing them of the purported increase and because the client did not challenge the RPI busting increase it is therefore binding on the client and can be recovered from the paying party. Not so said the Senior Costs Judge in Findley v Jones and MIB [2009] EWHC 90130 (Costs) (reaching the same conclusion as the judge in Puksis v Brumby [2008] EWHC 90095 (Costs)). Any increase allowable is limited to the rise in the RPI given the clear terms of such CFAs.

And this brings us on to a very topical issue. In recent years the increases in the Guideline Hourly Rates have been based on the Average Earnings Index for private sector service industries. This has tended to have a higher annual increase than the RPI, hence the problem created by the RPI clause. But now for the latest news. It has just been reported that that the RPI fell to 0% in February. If the RPI remains at this level, or even dips into negative territory, those firms who have the RPI clause will be unable to increase the hourly rates on any of their cases, regardless of whether the Guideline Hourly Rates increase. The only consolation to claimant lawyers is that these are not "tracker" clauses, otherwise firms would potentially be finding themselves having to reduce their rates in coming months. Defendant lawyers have been used to this prospect for years but this would come as something of a shock to the system for claimant lawyers.

"NHS leeches"

Although The Legal Costs Blog is unashamedly defendant biased, and always ready to have a go at claimant lawyers, even we were somewhat taken back by the attack launched on claimant clinical negligence lawyers in yesterday's Sunday Times.

One article was headed "Lawyers use NHS as £100m cash cow" and another "Lawyers get m0re than victims in NHS compensation scandal". The leading article ran with the headline "Taking a knife to the NHS leeches". The source of this fury seems to have been The NHSLA submission to civil litigation costs review.

The NHSLA paper states that "the whole costs structure is indefensibly expensive in relation to the compensation awarded or agreed". It highlights the large discrepancies between the amounts charged by defendant and claimant lawyers in clinical negligence cases and claims that "claimant legal costs are more than double the defendant legal costs on average and that the gap ... has been widening over recent years".

The impact of CFAs is particularly criticised, with it being claimed that "they are effectively a means of claimant lawyers virtually doubling their profit costs having cherry-picked their cases". It also claims that the effect of CFAs is to produce hourly rates of potentially over £800 an hour.

The papers makes a number of proposals for reform including the introduction of routine costs capping orders and fixed staged success fees.

The NHSLA's submission paper is for the benefit of Lord Justice Jacson's ongoing review of the current costs system. It appears that it is now being generally accepted that he really has neither ruled anything in nor ruled anything out. We can now start to expect a growing number of similar submissions from various interested parties trying to influence his thinking.

The Sunday Times leading article concluded: "The NHS Litigation Authority is right. We need to reform this process and end the party for lawyers." It is fair to say that the Sunday Times is not an entirely uninterested party. The Ministry of Justice is currently engaged in the Controlling costs in defamation proceedings consultation. The press has been attempting to limit CFA funded costs in such claims and a general attack on claimant lawyers' fees will do no harm to that cause.

It might be thought that the Jackson review is coming rather late in the day. Given the damp squib that, so far as costs proposals went, emerged from the Ministry of Justice's Response on the new claims process it seemed that the current government had no real appetite for a major shake-up of the current costs system. However, the Sunday Times quoted Mark Simmonds, the shadow health minister as saying: "It is unacceptable in some cases that the legal fees are many times higher than the awarded damages". With there being every chance of a new government next year, anything now looks possible.

Just as costs draftsmen and other costs professionals were beginning to think there might be some stability emerging, it now looks as if we are in for another period of uncertainty.

Signatures to CFAs

In a previous post I commented on the fact that Cook on Costs 2009 is wrong when it says: "With the removal of the [CFA] Regulations [2000] from 1 November 2005 a CFA needs only to be in writing and signed...".

As confirmed by Senior Costs Judge Master Hurst, in Findley v Jones and MIB [2009] EWHC 90130 (Costs): "As things stand at the moment there is no need for a CFA to be signed by the client. As at 4 May 2004 the CFA Regulations 2000 did require such a signature". The same view was expressed in Birmingham City Council v Forde [2009] EWHC 12 (QB).

The requirement for a CFA to be signed by the client and the legal representative disappeared with the revocation of the Regulations. However, what is the consequence if a pre-November 2005 was not signed? It will obviously be a breach of the Regulations but is it a material breach such as to render the agreement unenforceable?

In Fenton v Holmes [2007] EWHC 2476 (Ch) the Court was faced with a CFA document which had been signed by both the solicitor and client. However, the CFA lacked a crucial clause necessary to comply with the Regulations. This clause was contained within a seperate letter sent to the client. This letter was not signed by the client. Mann J found this to be a material breach and the CFA was found to be invalid.

In Preece v Caerphilly CBC (Cardiff CC, 15/8/07, unreported) (Lawtel Link) the CFA had been signed by the client but not by the solicitors. Hickinbottom J held: "I do not suggest for one moment that the solicitor’s signature in this case was omitted for anything other than the most innocent of reasons: but, if a CFA is not signed, then a less scrupulous solicitor may for example seek to enforce his right to be paid his reasonable costs if the client’s claim fails. The signature of the solicitor affords the client some real protection against that possibility, as rare as that hopefully might be in practice". The CFA was held to be invalid.

However, in Findley, Master Hurst decided that the failure of a Litigation Friend to re-sign a CFA previously signed by the Claimant was not a material breach. The facts of this case are so unusual that it is unlikely that much comfort can be taken from this judgment by others who find their CFAs not properly signed.

As a general rule, a CFA entered into before November 2005 that is not signed by the client and the legal representative is likely to be held invalid.

Click image to enlarge:

www.qccartoon.com

Cole v News Group - The unread judgment

Many years ago, when I was studying for my law degree, I was told never to simply rely on the headnote of a law report, but to read the judgment in full. This was for two reasons. Firstly, it was often only by reading the full judgment would one properly understand the decision and the reasoning behind it. Secondly, and perhaps more importantly, the headnote was sometimes inaccurate and misleading. Of course, at the time, I ignored that advice.

The modern equivalent to that advice is never trust case summaries you have simply read on the internet (this blog included) but to actually read the full judgment yourself.

A perfect example of the problems that arise from not following this advice is the strange case of Cole v News Group Newspapers Ltd (18/10/06, SCCO, unreported). I say "strange" because of the way this case has been reported. The background to the judgment was a libel claim brought by a certain well known footballer. I don't need to repeat the salacious details of the original story, but I'm sure Ashley would be intrigued to discover this case has become best known in certain circles as a legal costs law authority rather than for the original allegations.

A quick Google search for "Cole v News Group" produces a number of legal websites offering case summaries of this judgment. They all appear to be inaccurate. I say "appear" because the difficulty with this case is it truly does seem to be unreported and is not available on any of the normal resources such as Bailli or Lawtel. This seems to have encouraged a number of individuals to pass on details of this case on a Chinese whispers basis without actually obtaining and reading a copy. Further, a growing number of claimant costs draftsmen routinely quote this case to resist requests for disclosure of CFAs. It may be that the transcript of the case that I have seen is not the final decision and that a further decision exists. If that is the case, and any reader can produce a more recent decision, I will happily write a further post on the subject.

Of the various case summaries that do exist on the internet, three of them refer to this being a decision of Master Haworth in the SCCO. Two of those give the date of the judgment as being February 2007. The third states it is a decision of the Court of Appeal in February 2007. All the summaries seem to suggest that the Court (whichever Court it was) held that a court would not order disclosure of a CFA unless the paying party had first raised a "genuine issue". I don't propose in this post to address what the law actually is on that point.

So what did the judgment actually say? I believe the summary in Cook on Costs 2009 provides a true account of the decision (if not the law): "With the removal of the [CFA] Regulations from 1 November 2005 a CFA needs only to be in writing and signed but that did not stop an application for disclosure in Ashely Cole v News Group (2006) Oct 18 SCCO. That application failed simply because no points of dispute had been served hence CPR 47.14 and CPD 40.14 did not apply. No decision was made as to the applicability of Hollins to post 1 November 2005".

The transcript I have is dated 18 October 2006 (the same as the one quoted in Cook on Costs) and I am therefore proceeding on the basis that it is indeed the only judgment made in this case on that point. Cook on Costs' summary is accurate. The application was dismissed simply on the basis that it was premature. There is absolutely no mention of "genuine issue" in the judgment, let alone any finding on this point. Indeed, the judgment concludes that when the matter comes back to the Court for the detailed assessment hearing "it may very well be that at that stage a disclosure of the CFA is appropriate".

So my advice, particularly to any claimant costs draftsmen reading this blog, is obtain and read the actual judgment in this case before seeking to rely on a decision that does not actually support your position.

I'll come back to why Cook on Costs was wrong on the law on another day.

Put an end to excessive legal costs says MDU

The following comes from a Medical Defence Union press release dated 1 February 2009:

In an editorial in its Journal published this week, the MDU, which represents over half of UK doctors, questioned the fairness of Conditional Fee Agreements (CFAs), which account for around 19 per cent of UK medical cases brought against MDU members. It revealed that claimants’ solicitors may demand 50 per cent higher hourly rates than defendants’ solicitors and that the costs awarded in cases brought under CFAs were significantly higher. For example, in the last three years, in those litigated CFA cases where the average damages were £5,000, the average claimants’ costs were more than four times higher at £22,000.

Dr Karen Roberts, MDU medico-legal adviser and Journal Medical Editor said:

“Of course, claimants who have been negligently harmed by their doctor should be compensated, but a system that provides solicitors’ firms with rewards which dwarf the value of a claim needs to be reformed.

“The number of clinical negligence cases the MDU sees is not increasing, but the cost of settling cases is rising by more than the rate of inflation. Legal rulings such as the recent Thompstone Judgment can make a difference, which is particularly dramatic for the NHS because it has so many high-value claims for babies who suffer neurological damage. MDU members’ claims, which arise out of care delivered in the primary and independent sectors, are not affected to the same degree and members will not see a dramatic rise in their subscriptions. However, in common with the NHSLA, we see one of the key inflationary factors as the excessive legal costs awarded to claimants’ solicitors. I t cannot be right that legal firms should continue to receive payments out of all proportion to the amount of damages awarded, particularly when these costs are funded, ultimately by the taxpayer.”

In the Journal editorial, Dr Christine Tomkins, Deputy Chief Executive of the MDU proposed a two-fold approach to addressing the issue of CFA costs. She wrote: “We propose first that the inequities introduced by very high success fees could be addressed by capping the success fees chargeable by claimants’ solicitors in CFA funded negligence cases. Second, we suggest there should be a restriction on the hourly rate of claimants’ solicitors so that they more closely resemble the rates charged by defendants’ solicitors. We are confident that there is now a will to tackle this question … We very much welcome the news that the Master of the Rolls has appointed Lord Justice Jackson to lead a fundamental review of civil costs, commencing in January 2009. We believe that there needs to be a review of the way clinical negligence cases are funded and we look forward to contributing to the review on behalf of members.”

NHS facing £700m negligence bill

In a time of global recession, some good news for personal injury lawyers and, in due course, costs draftsmen and other costs professionals in the announcement that clinical negligence payouts by the NHS in England are expected to rise by 80% next year.

The BBC reports that Steve Walker, chief executive of the NHS Litigation Authority, said part of the increase was prompted by a recent ruling in the Court of Appeal - the Thompstone judgment - which changes the way that payments for care are calculated.

He also said the move to more "no win no fee" cases had increased costs "dramatically" because it meant that solicitors were picking their cases carefully.

"The proportion of successful claims has gone up and is rising," he said.

"Legal practices are businesses and why not try and double your income for the same amount of work."

Birmingham City Council v Forde

The recent decision in Birmingham City Council v Forde [2009] EWHC 12 (QB) is a worrying one both for Defendants and for the legal profession generally. This was an appeal to the High Court from a decision of the Supreme Court Costs Office. Unusually, for a case heard in Birmingham District Registry, the Senior Costs Judge Master Hurst sat with the Judge as one of the assessors. The judgment is long and detailed but we will try to summarise the important issues.

The Claimant’s solicitors had entered into a Conditional Fee Agreement (CFA) with the Claimant which did not include a success fee. The CFA was entered into prior to the revocation of the CFA Regulations 2000. Shortly before the conclusion of the claim, the Claimant’s solicitors became concerned as to the validity of their CFA due to challenges that the Defendant local authority had been raising in relation to similar agreements. They therefore entered into a second CFA that purported to cover all work performed, including the work already done under the original CFA. This new CFA sought a success fee of up to 100% if the matter proceeded to trial. The new CFA was entered into after the revocation of the CFA Regulations 2000. A letter was sent to the Claimant together with the CFA which stated that all legal costs to date were to be dealt with under the second agreement unless the Court ruled that the new agreement was invalid, in which case the original CFA would be relied on. The Defendant challenged the validity of the second CFA. On appeal it was held:

• Following Jones v Wrexham Borough Council [2007] EWCA Civ 1356, it was confirmed that the letter formed part of the second CFA.

• There was nothing wrong with seeking to rely on the first CFA in the event that the Court held the second to be invalid.

• There was adequate consideration for the second CFA by virtue of the agreement to continue to act for the Claimant. This was particularly so given the doubt over the validity of the first CFA. The obligation to provide services under the second CFA in place of a potentially unenforceable obligation under the first CFA was consideration for a fresh promise to pay.

• It was permissible, as a matter of general principle, for a CFA to be retrospective (confirming Master Hurst’s decision in King v Telegraph Group Ltd [2005] EWHC 90015 (Costs)).

• It was not, per se, contrary to public policy to allow a retrospective success fee. This contrasted with Master Hurst’s view in King. A court was held to have sufficient power to reduce or disallow success fees that were unreasonable.

• The Judge held that even if he was wrong as to whether it was contrary to public policy to allow a retrospective success fee, it did not follow that the second CFA was invalid. He could “see no reason why the Court cannot place its blue pencil through the success fee provision”.

• Given the above, the second CFA was held to be valid. The Claimant had abandoned any claim for a success fee and the Court therefore did not have to decide what success fee, if any, it would have allowed.

This decision throws up a number of concerns:

• The notion that a solicitor can have a number of “belt and braces” arrangements in place and be able to rely on one if others fail is an uncomfortable proposition. It has generally been accepted that there can be only one retainer in place at any one time in relation to the same matter. This decision would appear to invite solicitors to enter into novel retainers at or beyond the very borderline of enforceability with a second, safer, agreement to fall back on in the event that the other is held to be defective.

• The judge ruled:

“It is material to note that the occasions when a retrospective CFA will be entered into after a CFA without a success fee has already been signed are likely to be limited. If such a CFA already exists the solicitor will be bound by it and is unlikely to need, or be able, to enter into a new retrospective CFA. In the present case it is the fact that the Council challenged the validity of [the first] that provided both the incentive for a new agreement and its justification.”

What is this meant to mean in practice? What does it mean when the Judge says a solicitor would not be “able” to enter into a new retrospective CFA? Would the CFA be defective in that situation and all costs be disallowed? Would the “blue pencil” approach rescue the CFA as a whole but simply strike down the success fee? What if the solicitors were concerned as to the validity of their CFA but no actual challenge had yet been raised by the Defendant, unlike in this matter? In what other circumstances would a solicitor be “able” to enter into a new agreement? This decision raises more questions than it answers.

• The decision that there was nothing wrong with a retrospective success fee in principle is perhaps the most worrying aspect of this judgment. The whole ethos of CFAs is that the solicitor accepts the risk of non-payment of future costs at the time of entering into the agreement and that when it comes to assessing the reasonableness of a success fee the Court will “have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into”. The Court is not meant to use the benefit of hindsight. This issue was explored by the Court of Appeal in KU v Liverpool City Council [2005] EWCA Civ 475, where it was determined that a Court did not have the power to award different success fees for different periods in a claim where the CFA itself did not provide for the same:

“The approach of the district judge negates the whole purpose of assessing at the outset the risks involved in pursuing a claim. The solicitor did not have the contractual power or the professional duty to do what the district judge suggested, namely to renegotiate the success fee once it became clear that the risks were now very small and that there was no longer any need to fear a ‘worst case scenario’ such as might have been in the solicitor's mind when the CFA was initially agreed.”

The decision in Forde appears to give Claimant solicitors the right to enter into a retrospective CFA with a success fee, or amend the success fee of an existing CFA retrospectively, with the benefit of hindsight. However, given the clear Court of Appeal decisions on the subject, the Court does not have the power to reduce a success fee applying the benefit of hindsight. Given it can be safely assumed that Claimant solicitors will not voluntarily reduce their success fees if a case becomes less risky, the outcome will inevitably be higher success fees paid by defendants. If a solicitor, for example, set a success fee at 40% for a case that carried some real risks, and 40% was an appropriate figure at that stage, the Court has no power to allow a different success fee at any point in the claim simply because the case becomes much more straightforward at a later point, even if liability is admitted the following day. However, the decision in Forde appears to allow the solicitors to increase the success fee, and potentially recover an increased amount, if the claim becomes more complex. This undermines the whole principle on which CFAs were meant to be based.

• The judgment also ignores the views expressed by Lord Hoffman in Callery v Gray [2002] UKHL 28 as to whether a CFA could be retrospective under the current rules and also the policy issues that were argued in that case. It will be recalled that the Defendants in Callery argued that it was unreasonable to enter into a CFA from the outset and that this should be delayed until a response had been received from the Defendant. Lord Hoffman commented:

“22. Three arguments were given for fixing the success fee at once. The first was that it was a necessary part of a conditional fee agreement and that it was natural for client and solicitors to want to agree at the first opportunity upon the terms of engagement. The client wants to be sure from the beginning that whatever happened he will not have to pay any costs and the solicitor wants to be sure that any work he did will be covered by the agreement and recoverable (in the event of success) from the defendant. The Court of Appeal recorded (at p 2132, para 90) the claimants' argument:

“The claimant will be concerned [when he first instructs a solicitor] that, by giving instructions...he is not exposing himself to liability for costs. The solicitor for his part will be anxious to offer the claimant services on terms that, whatever the outcome, he will not find himself liable for costs."

23. I am sure that giving such an assurance is an important selling point… and perhaps under the present rules an immediate conditional fee agreement is the only practical way of achieving it [emphasis added]. In a large-scale study undertaken in 1998 on behalf of the Legal Aid Board Research Unit (Report of the Case Profiling Study Personal Injury Litigation in Practice) Mr Pascoe Pleasence noted (at p. 19) that “it was common for clients to have their initial advice in a free consultation with a solicitor. Often firms used free first consultations as a marketing tool...”. It may therefore be that if a solicitor had to wait until he received an answer to his letter before action before fixing the success fee, he would be willing for marketing purposes to take the risk of not being able to recover from anyone the relatively trivial costs already incurred. On the other hand, it may need a change to the indemnity principle to provide him with the additional incentive of being able to recover those costs from the defendant if the claim succeeds [emphasis added]. These are empirical questions on which it is difficult for judges to form a view.

24. The second argument was that by agreeing to a success fee at the first meeting, the client so to speak insures himself against having to pay a higher one later if his case turns out to be more difficult than at first appeared. … At first sight, therefore, one could say that agreeing an immediate success fee is no more than economically rational behaviour on the part of any client and that the fee should therefore be recoverable as an expense reasonably incurred.”

If it is now being suggested that there is nothing wrong in having retrospective CFAs and retrospective success fees then the whole issue of timing needs to be urgently re-examined. The justification for entering into CFAs at the outset, that was argued for in Callery, disappears if Forde is correct. Further, it cannot be right that this only operates in favour of claimant solicitors who can move success fees upwards if a case becomes more risky but there be no duty on the solicitors, or power of the courts, to lower success fees if a case becomes more simple. Just as some certainty was beginning to enter this difficult area the whole issue appears to be unravelling.

• An unfortunate element of this judgment is how little consideration appears to have been given to the issue of whether there were public policy objections to allowing the second CFA to replace the potentially defective first CFA. The judge seems to have gone no further than considering that there was no inherent objection to a retrospective CFA. This is unfortunate because, we would suggest, there is very clear guidance on the correct public policy approach. When the CFA Regulations 2000 were revoked, such revocation could have been made retrospective so that failure to have complied with the Regulations in a material manner would no longer have the consequence that a pre-November CFA agreement was invalid. However, a decision was clearly taken not to adopt this approach. Indeed, the CFA (Revocation) Regulations 2005 expressly stated that the Regulations would continue to apply to CFAs entered into before 1st November 2005. One of the main reasons why the Regulations were revoked was because of the perceived unfairness in a solicitor losing all their costs as a result of what might be viewed as a mere technical breach. Nevertheless, the decision not to make the revocation retrospective must have been taken with full knowledge and intention that solicitors would not recover costs if a breach had occurred pre-1st November 2005. Further, the Court of Appeal has shown itself willing to find older CFAs invalid since the revocation. Given this, it should be clear that there is already a clear public policy as to the consequences of failing to comply with the Regulations for cases where the Regulations were still in force: non-recovery of costs. The apparent total failure in this judgment to consider whether it could therefore be legitimate to use the device of a retrospective CFA to recover costs that might otherwise be irrecoverable is therefore unfortunate.

A further issue that the judgment considered was the extent to which there is or is not a duty to advise a defendant of the existence of a CFA with a success fee before proceedings are issued. This issue was of particular importance here given notification could obviously not be given of a CFA until the same is entered into. Could it be right for a success fee to be claimed for a period in the claim where a defendant had no knowledge that a CFA was in place (or was to be put in place)? This was one of the factors that persuaded Master Hurst in King that a retrospective success fee could not be recovered. The question of whether there is a duty to notify pre-proceedings is something of a grey area with various conflicting decisions. The judge in Forde appeared to accept that there was no duty to give such notification. However, given the Claimant had withdrawn the claim for a success fee, these observations can probably be treated as being obiter only.

This case might be viewed as simply a pragmatic attempt to allow for a retrospective CFA to replace a potentially invalid one and therefore avoid the perceived injustice of the solicitors losing all their costs. Unfortunately, the decision opens a can of worms that applies with equal force to agreements entered into under post-revocation of the CFA 2000 Regulations.