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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Hollins v Russell [2003] EWCA Civ 718 (22 May 2003) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2003/718.html Cite as: [2003] 4 All ER 590, [2003] 3 Costs LR 423, [2003] EWCA Civ 718, [2003] 1 WLR 2487 |
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A2/2002/2340; A2/2002/1963; A2/2002/2413; A22002/2647 |
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM OLDHAM COUNTY COURT
Judge Tetlow
District Judge Simpson
Strand, London, WC2A 2LL |
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B e f o r e :
LADY JUSTICE HALE
and
LADY JUSTICE ARDEN
____________________
| A2/2003/0018 | BRADLEY HOLLINS |
Appellant |
| - and - |
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| REV S H RUSSELL |
Respondent |
|
| A2/2002/2326 Altrincham County Court Judge Holman Deputy District Judge Brooks |
MARK EDWARD TICHBAND And Mrs B HURDMAN |
Appellant/ Claimant Respondent/Defendant |
| A2/2002/2340 Chester County Court Judge Barnett District Judge Wallace |
ALISON DUNN And HELEN WARD |
Appellant/ Claimant Respondent/ Defendant |
| A2/2002/1963 Taunton County CourtJudge Cotterill Deputy District Judge Roach |
DORA MAY PRATT And DANIEL DAVID MICHAEL BULL |
Appellant/ Claimant Respondent/ Defendant |
| A2/2002/2413 Liverpool County Court Judge Marshall-Evans QC District Judge Wright |
JOHN JOSEPH WORTH And JAMES JOSEPH MCKENNA |
Respondent/Claimant Appellant/ Defendant |
| A2/2002/2647 Supreme Court Costs Office Master Hurst |
GERALD SHARRATT v LONDON CENTRAL BUS COMPANY LIMITED and other cases THE ACCIDENT GROUP TEST CASES |
____________________
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
____________________
Richard Drabble QC & David Holland (instructed by Gruber Garratt) for the Appellant and also for the Law Society (intervening in all these appeals)
Ian McLaren QC & Andrew Hogan (instructed by DLA) for the Respondent
A2/2002/2326
Guy Mansfield QC & Nicholas Bacon (instructed by Colemans-CTTS) for the Appellant
Ian McLaren QC & Andrew Hogan (instructed by DLA) for the Respondent
A2/2002/2340
Ian McLaren QC & Andrew Hogan (instructed by DLA) for the Appellant
Guy Mansfield QC & Nicholas Bacon (instructed by Amelans) for the Respondent
A2/2002/1963
Ian McLaren QC & Andrew Hogan (instructed by DLA) for the Appellant
Jonathan Dingle (instructed by the Stokes Partnership) for the Respondent
A2/2002/2413
Ian McLaren QC & Andrew Hogan (instructed by DLA) for the Appellant
Nicholas Bacon (instructed by Irvings) for the Respondent
A2/2002/2647
Ian Burnett QC, Deborah Taylor & Benjamin Williams (instructed by Beachcroft Wansboroughs, Carters and Vizards Wyeth) for the Appellants/Defendants
Timothy Charlton QC & Nicholas Bacon (instructed by Rowe Cohen) for the Respondents/Claimants
Hearing dates: 18th to 21st March 2003
____________________
Crown Copyright ©
In these six appeals the court has been concerned with a number of aspects of the new Conditional Fee Agreement ("CFA") regime which came into effect in April 2000. The judgment is in seven parts.
In Part 1 (paras 1-40) the court describes the different forces at work in the period leading up to the creation of the new regime (paras 9-14, 25-29, 37-40). It gives details of the Act and the Regulations which brought it into effect (paras 15-21, 30-36) and refers to the "indemnity" principle" which ensures, for instance, that a defendant cannot be held liable to pay costs to a successful claimant if the claimant is not legally liable to pay those costs (paras 22-24).
In Part 2 (paras 41-50) the court identifies the issues raised by these appeals and the concerns of the intervening parties, who include the Law Society (paras 44-48.). It also mentions the worries expressed by the House of Lords about the opportunities for abuse opened up by the new regime (paras 49-50).
Parts 3 and 4 contain the main substance of the judgment. In Part 3 (paras 51-67) the court distinguishes the case of Bailey v IBC Vehicles Ltd [1998] 3 All ER 570 and makes it clear that in future when a receiving party relies on a CFA (with or without a success fee) the costs judge should put him to his election whether he will disclose the CFA to the paying party or endeavour to prove his entitlement to the costs he claims by some other means (para 71). On the other hand he should not ordinarily be required to produce attendance notes (para 81). The court expressed the hope that in practice receiving parties will disclose the CFA without more ado (para 82). The court therefore allowed two appeals in which the circuit judge had not put the receiving party to his election (para 87).
In Part 4 (paras 88-116) the court gives guidance to costs judges in cases where the paying party alleges that a CFA is unenforceable because there has been a breach of one or more of the relevant regulations. It suggests that they should ask themselves: "Has the particular departure from a regulation pursuant to section 58(3)(c) of the 1990 Act or a requirement in section 58, either on its own or in conjunction with any other such departure in this case, had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?" If the answer is "yes" the conditions have not been satisfied. If the answer is "no" then the departure is immaterial and (assuming that there is no other reason to conclude otherwise) the conditions have been satisfied. The court also referred to the recoverability of the "After The Event" insurance premium and the disbursements which a client had paid or to which he was committed in cases where the CFA itself was held to be unenforceable (paras 113-116)
In Part 5 (paras 117-218) the court applies these principles in determining the appeals in which a breach of the regulations is alleged. It finds that there was no material breach in any of the cases. In The Accident Group Test cases the court explained its reasons for upholding the judgment of Master Hurst who had held that there was not inevitably going to be a breach of the Regulations simply because a solicitor delegated some of his obligations to a TAG representative. It laid stress, however, on the solicitor's supervisory responsibilities in these circumstances.
In Part 6 (paras 219-226) the court summarises its conclusions. In Part 7 (paras 227-228) it sets out the results of the individual appeals and the consequential orders it was making in the appeals which it allowed.
| Heading | Para No | |
| 1 | Conditional Fee Agreements: the history | |
| (i) The Courts and Legal Services Act 1990 | 1 | |
| (ii) Three forces at work in the late 1990s | 9 | |
| (iii) The Access to Justice Act 1999 | 15 | |
| (iv) The indemnity principle | 22 | |
| (v) Concerns about consumer protection | 25 | |
| (vi) The Conditional Fee Agreements Regulations 2000 | 30 | |
| (vii) Two other contemporary concerns | 37 | |
| 2 | The six appeals: | |
| (i) The issues they raise | 41 | |
| (ii) The concerns of the interveners | 44 | |
| (iii) The concerns of the House of Lords | 49 | |
| (iv) Matters of common ground | 50 | |
| 3 | Disclosure of CFAs | 51 |
| 4 | Satisfying the conditions in section 58 | 88 |
| 5 | Particular allegations | 117 |
| (i) Regulation 2(1)(d) | 118 | |
| (ii) Regulation 3(1)(b) | 131 | |
| (iii) Regulation 4(2)(c) | 136 | |
| (iv) Regulation 4(2)(e)(ii) | 141 | |
| (v) Regulation 4(5) | 145 | |
| (vi) The TAG cases: who is the "legal representative"? | 155 | |
| 6 | Conclusions: the right approach | 219 |
| 7 | Results of the individual appeals | 227 |
Lord Justice Brooke:
This is the judgment of the court to which each of us has contributed.
1. Conditional Fee Agreements: the History
(i) The Courts and Legal Services Act 1990
"(a) the particular proceedings or parts of them to which it relates ;
(b) the circumstances in which the legal representative's fees and expenses are payable;
(c) what, if any, payment is due
(i) upon partial failure of the specified circumstances to occur;
(ii) irrespective of the specified circumstances occurring; and
(iii) upon termination of the agreement for any reason;
(d) the amount payable in accordance with sub-paragraphs (b) or (c) above or the method to be used to calculate the amount payable; and in particular whether or not the amount payable is limited by reference to the amount of any damages which may be recovered on behalf of the client." (regulation 3)
(ii) Three forces at work in the late 1990s
"(1) A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but any other conditional fee agreement shall be unenforceable."
"(1) A solicitor who is retained or employed to prosecute or defend any action, suit, or other contentious proceedings, shall not enter into any arrangement to receive a contingency fee in respect of that proceeding, save one permitted under statute or by the common law." (Emphasis added)
(iii) The Access to Justice Act 1999
"17(1) The general objective of this Part is the development of legal services in England and Wales (and in particular the development of litigation services) by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice."
"(3) The following conditions are applicable to every conditional fee agreement
(a) it must be in writing;
(b) it must not relate to proceedings which cannot be the subject of an enforceable conditional fee agreement; and
(c) it must comply with such requirements (if any) as may be prescribed by the Lord Chancellor."
"(3) The requirements which the Lord Chancellor may prescribe under section 58(3)(c)
(a) include requirements for the person providing advocacy or litigation services to have provided prescribed information before the agreement is made; and
(b) may be different for different descriptions of conditional fee agreements (and, in particular, may be different for those which provide for a success fee and those which do not)."
(iv) The indemnity principle
"A client shall not be entitled to recover from any other person under an order for the payment of any costs to which a contentious business agreement relates more than the amount payable by him to his solicitor in respect of those costs under the agreement."
"In section 51 of the Supreme Court Act 1981 (costs) in subsection (2) (rules regulating matters relating to costs) insert at the end 'or for securing that the amount awarded to a party in respect of the costs to be paid by him to such representatives is not limited to what would have been payable by him to them if he had not been awarded costs'."
This section, however, has not yet been brought into force. (It will be noticed that these two sections state the principle in different ways, but that need not concern us for the purposes of these appeals.)
(v) Concerns about consumer protection
"If the legal representative recommends a particular product, but also has an interest in doing so, for example because he or she will receive a commission or is a member of the insurer's panel of solicitors, then this must also be disclosed to the client."
(vi) The Conditional Fee Agreements Regulations 2000
"the amounts which are payable in all the circumstances and cases specified or the methods to be used to calculate them and, in particular, whether the amounts are limited by reference to the damages which may be recovered on behalf of the client."
This differs from regulation 3(d) of the 1995 Regulations in using the conjunction "whether" rather than "whether or not".
"(2) A conditional fee agreement to which regulation 4 applies must contain a statement that the requirements of that regulation which apply in the case of that agreement have been complied with."
This is similar to regulation 4(1) of the 1995 Regulations, which required a CFA to state that various specified matters had been drawn to the client's attention immediately before the agreement was made.
"(1) A conditional fee agreement which provides for a success fee
(a) must briefly specify the reasons for setting the percentage increase at the level stated in the agreement, and
(b) must specify how much of the percentage increase, if any, relates to the costs to the legal representative of the postponement of his fees and expenses.
(2) If the agreement relates to court proceedings, it must provide that where the percentage increase becomes payable as a result of those proceedings, then
(a) if
(i) any fees subject to the increase are assessed, and
(ii) the legal representative or the client is required by the court to disclose to the court or any other person the reasons for setting the percentage increase at the level stated in the agreement,
he may do so "
"4. Information to be given before conditional fee agreements made:
(1) Before a conditional fee agreement is made the legal representative must
(a) inform the client about the following matters, and
(b) if the client requires any further information, advice or other information about any of these matters, provide such further explanation, advice or other information about them as the client may reasonably require.
(2) Those matters are:
(a) the circumstances in which the client may be liable to pay the costs of the legal representative in accordance with the agreement,
(b) the circumstances in which the client may seek assessment of the fees and expenses of the legal representative and the procedure for doing so,
(c) whether the legal representative considers that the client's risk of incurring liability for costs in respect of the proceedings to which the agreement relates is insured against under an existing contract of insurance,
(d) whether other methods of financing those costs are available, and, if so, how they apply to the client and the proceedings in question,
(e) whether the legal representative considers that any particular method or methods of financing any of all of [the costs in respect of the proceedings to which the agreement relates] is appropriate and, if he considers that a contract of insurance is appropriate or recommends a particular such contract
(i) his reasons for doing so, and
(ii) whether he has an interest in doing so.
(3) Before a conditional fee agreement is made the legal representative must explain its effect to the client.
(5) Information required to be given under paragraph (1) about the matters in paragraph 2(c) and the explanation required by paragraph (3) must be given both orally and in writing."
(vii) Two other contemporary concerns
2. The six appeals
(i) The issues they raise
(i) the circumstances in which a court should put a receiving party in detailed assessment proceedings to its election, so that it must choose whether to disclose its CFA to the paying party or to endeavour to prove its claim by other means (Pratt v Bull; Worth v McKenna);
(ii) the proper construction of the words "satisfies all of the conditions applicable to it" in section 58(1) of the 1990 Act and whether any costs or disbursements are recoverable from a paying party in the event of non-compliance with the CFA Regulations (all cases);
(iii) whether, on particular facts, the requirements contained in one or other of regulations 2, 3 and 4 of the CFA Regulations were not complied with (Hollins v Russell (reg 2), Tichband v Hurdman (regs 2 and 3), Pratt v Bull, Dunn v Ward and The Accident Group ("TAG") Test Cases (reg 4));
Master Hurst sat as our assessor for the first two days of the hearing, when we were concerned with issue (i) and the first four appeals mentioned under issue (iii), and we benefited from his wise advice.
(ii) The concerns of the interveners
" Our members talk about the uncertainty of undertaking claimants' personal injury work when it is impossible to know whether they will ever be paid for the work they are doing. A disproportionate amount of solicitors' time is being spent sorting out these cases [Our members] fear that their clients are fast losing confidence in the legal system, seeing 'technical challenges' as a means of depriving them of what has been recovered for them, if indeed they understand the matter at all Many of our members have used the word 'bewildered' to describe their clients' states of mind when told about these challenges Many of our members have indicated that they will not seek to recover any costs from the client in the event that the CFA is technically invalid. The loss will fall on the solicitor, who has done a competent job for his client and recovered damages for him, but will not be paid at all."
(iii) The concerns of the House of Lords
(iv) Matters of common ground
3. Disclosure of CFAs
"40.14 The court may direct the receiving party to produce any document which in the opinion of the court is necessary to enable it to reach its decision. These documents will, in the first instance, be produced to the court, but the court may ask the receiving party to elect whether to disclose a particular document to the paying party in order to rely on the contents of the document, or whether to decline disclosure and instead rely on other evidence."
"The [costs judge] does not have any power to order discovery to be given: he does not have any power to override a right of privilege. But it is the duty of the [costs judge] if the respondent raises a factual issue, which is real and relevant and not a sham or fanciful dispute to require the claimant to prove the facts on which he relies. The claimant then has to choose what evidence and to what extent he will waive his privilege. That is a choice for the claimant alone. The [costs judge] then has to decide the issue of facts on the evidence. In considering whether he is satisfied by the evidence, the [costs judge] will no doubt take into account that the claimant may have a legitimate interest in not disputing the most obvious or complete evidence and may prefer to rely on oral evidence rather than producing privileged legal documents."
"The need for a complainant to give evidence to prove his entitlement to costs rather than relying on the presumption in his favour will not, however, arise if the defendant simply puts the complainant to proof of his entitlement to costs. The complainant would be justified in relying on the presumption in his favour. It would be necessary for the defendant to raise a genuine issue as to whether the complainant is liable for his solicitors' costs before the complainant would be called upon to adduce evidence to show that he is entitled to his costs."
The court also held that:
" there is normally a presumption that the complainant will be personally liable for his solicitors' costs and it should not normally be necessary for the complainant to have to adduce evidence to that effect." (page 892).
"The [costs] officer is exercising a judicial function with substantial financial consequences for the parties. To perform them he has trusted properly to consider material which would normally be protected from disclosure under the rules of legal professional privilege. If after reflecting on the material available to him, some feature of the case alerts him to the need to make further investigation or causes him to wonder if the information with which he is being provided is full and accurate he may seek further information. No doubt he would begin by asking for a letter or some form of confirmation or reassurance as appropriate. If these were to prove inadequate he might then make orders for discovery or require affidavit evidence It would theoretically be open to him to order interrogatories. However, if the stage had been reached where interrogatories might reasonably be ordered the conclusion that the receiving party had not been able to satisfy the [costs] officer about the bill or some particular aspect of it would seem inevitable An emphatic warning must be added against over-enthusiastic deployment of these powers, particularly at the behest of the party against whom the order for costs has been made The danger of 'satellite litigation' is acute. As far as possible consistent with the need to arrive at a decision which does broad justice between the parties it must be prevented or avoided and additional effort required of the parties to keep to the absolute minimum necessary for the [costs] officer properly to perform his functions." (pages 572 to 573).
"They would not have produced a signed bill of costs which included a claim for 'reasonable' costs which would have fallen foul of the indemnity principle In the ordinary case in which a 'client care letter' has been provided (and certainly if and when the client care letter becomes obligatory) the hourly rate claimed on the bill of costs should coincide with the terms of that letter [I]n view of the increasing interest taken in this issue by unsuccessful parties to litigation, coupled with the developing practice in relation to conditional fees, the extension of the 'client care' letter and contentious business agreements under section 60(3) [on the Solicitors' Act 1974], in future, copies of the relevant documents (where they exist) or a short written explanation should normally be attached to the bill of costs. This will avoid skirmishes which add unnecessarily to the costs of litigation." (page 575).
"In so signing he certifies that the contents of the bill are correct. That signature is no empty formality. The bill specifies the hourly rates applied, and the care and attention uplift claimed. If an agreement between the receiving solicitor and his client restricted (say) the hourly rate payable by the client, that hourly rate is the most that can be claimed or recovered on [detailed assessment] The signature of the bill of costs under the rules is effectively the certificate by an officer of the court that the receiving party's solicitors are not seeking to recover in relation to any item more than they have agreed to charge their client For the avoidance of doubt, I also agree that the [costs] officer may and should seek further information where some feature of the case raises suspicions that the whole truth may not been told. And the other side of a presumption of trust afforded to the signature of an officer of the court must be that breach of that trust should be treated as a most serious disciplinary offence." (p 575)
Form N251 (this confirms that particular claims are funded by a conditional fee agreement of a specified date providing for a success fee. The requirement to produce this information is duplicated by paragraph 19.4(2) of the Costs Practice Direction)
The solicitors' bill showing the amount of the success fee
A statement showing the amount of the costs which have been summarily assessed or agreed and the percentage increase which has been claimed in respect of those costs (paragraph 32.5(1)(a) of the Costs Practice Direction)
A statement of the reasons for the percentage increase given in accordance with regulation 3(1)(a) of the CFA Regulations (paragraph 32.5(1)(b) of the Costs Practice Direction). The receiving party may disclose the risk assessment schedule for this purpose
Where points of dispute are served, information about other methods of financing the costs which were available to the receiving party (paragraph 35.7 of the Costs Practice Direction)
"Once a document is of sufficient importance to be taken into account in arriving at a conclusion as to recoverability, then, unless otherwise agreed, it must be shown to the paying party or the receiving party must content himself with other evidence."
Mr McLaren QC, who appeared for the appellants in these cases, also referred us to Dickinson (T/A John Dickinson & Finance) v Rushmer (T/A F J Associates) [2002] 1 Costs LR 98, in which Rimer J took the view that a client care letter was not privileged. Mr McLaren argued that by the stage of the assessment of costs, any privilege has been exhausted.
"Before expressing a view we would like to have had before us a claim for privilege specifying the grounds upon which it is based. We would also like to hear the full argument that was not presented on this appeal in view of the approach now adopted by the defendants to their seeking to inspect the CFAs. We recognise that a distinction might exist between the position in relation to any advice given to a client about the advisability of entering into a CFA and the document itself. However, what follows from what we have said as to the effect of CFAs means that absent exceptional circumstances which we cannot envisage, unless and until the other party to the proceedings makes an application for an order making the legal advisers personally liable for costs, the existence or the terms of a CFA are of no relevance to the issues and the proceedings. They are therefore on that ground not required to be disclosed."
"This is not intended to suggest the costs judge may potentially put the receiving party to its election in respect of every document relied on, regardless of its degree of relevance. I would expect that in the great majority of cases the paying party would be content to agree that the costs judge alone should see the privileged documents. Only where it is necessary and proportionate should the receiving party be put to his election. The redaction and production of privileged documents, or the adducing of further evidence, will lead to additional delay and increased costs."
We agree.
4. Satisfying the conditions in section 58
"A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but . . . any other conditional fee agreement shall be unenforceable."
The whole of section 58 was substituted (and section 58A added) by section 27(1) of the Access to Justice Act 1999. Its predecessor, enacted in 1990, had simply provided in section 58(3) that
"Subject to subsection (6) a conditional fee agreement which relates to specified proceedings shall not be unenforceable by reason only of its being a conditional fee agreement."
The only provision specifically making a CFA unenforceable was that in subsection (6) dealing with CFAs which contained a success fee greater than the permitted maximum for the proceedings in question.
"The position is more complex than this and this approach distracts attention from the important question of what the legislation should be judged to have intended should be the consequences of the non-compliance. This has to be assessed on a consideration of the language of the legislation against the factual circumstances of the non-compliance."
He concluded his discussion of examples at p 359:
"It must be remembered that procedural requirements are designed to further the interests of justice and any consequence which would achieve a result contrary to those interests should be treated with considerable caution."
"If the statutory requirements are complied with the CFA will be valid and enforceable by the legal advisers against a client. If it materially departs from the legislative requirements it will not be enforceable and will not be a CFA which is protected by [the section]." [Our emphasis]
"The basic task of the court is to ascertain and give effect to the true meaning of what Parliament has said in the enactment to be construed. But that is not to say that attention should be confined and a literal interpretation given to the particular provisions which give rise to difficulty. Such an approach not only encouraged immense prolixity in drafting, since the draftsman will feel obliged to provide expressly for every contingency which may possibly arise. It may also (under the banner of loyalty to the will of Parliament) lead to the frustration of that will, because undue concentration on the minutiae of the enactment may lead the court to neglect the purpose which Parliament intended to achieve when it enacted the statute. Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment."
"Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy."
It will be seen, therefore, that ATE insurance premiums are recoverable as costs in any proceedings, irrespective of whether or not there is a CFA between the receiving party and her legal representatives. The client's liability to pay the insurance premium arises from the contract of insurance, not from her contract with the legal representative. It arises whether or not there is a CFA and whether or not the CFA is enforceable. The CFAs which we have seen refer to the possibility of such insurance, but do not make it a term of the contract that such insurance is taken out. It would appear, therefore, that there is no bar to the recovery of the ATE insurance premium as costs whatever may be the bar to the recovery of the lawyers' charges and success fee.