UK: Conditional Fees Agreements 2002

The opportunity was missed to give general guidelines and the Court of Appeal Callery -v- Gray went out of their way to emphasise that as far as the level of success fee and insurance premium was concerned, the decision was limited to small fast track cases involving road traffic accidents. Satellite litigation has continued and the challenges to conditional fee agreements have become more technical. The House of Lords has said that the responsibility for monitoring and controlling this developing practice area lies with the Court of Appeal.

Recently, the Court of Appeal sat, with Master O’Hare acting as assessor, in the case of Halloran -v- Delaney, and held that ordinarily a 5% success fee will be allowed in those simple cases which settle without the need to commence proceedings, unless the court is persuaded that a higher uplift is appropriate in the particular circumstances. This approach is to be adopted in all cases where the CFA is entered into on or after 1 August 2001, when both Callery judgments were published. The Court also accepted, following the decisions in Bensusan -v-Freedman and Tilby -v- Perfect Pizza Limited, that a case was not concluded until costs were finally assessed, so that the after the event (ATE) policy continues until that stage is reached.

In Halloran, the use of a two stage success fee suggested by Lord Woolf in Callery -v-Gray is being endorsed. In Callery it was accepted that ATE premiums are recoverable in cases where no proceedings have been issued, and that it was reasonable to take out the ATE policy at the earliest possible moment. Further, it was reasonable to enter into a CFA with a success fee right at the outset, even before the claimant’s solicitor writes his letter of claim or knows the Defendant’s position on liability. In fast track, road traffic accident cases, involving personal injury, the Court indicated that the maximum uplift that could be claimed is 20%, subject to any special features. Lord Woolf went on to suggest that an uplift of 100% might be agreed, subject to a reduction to 5% if the case settled before the end of the protocol period.

The Court of Appeal felt unable to give guidance as to the level of the ATE premium. Master Hurst has considered the Claims Direct premium of £1,250 plus insurance premium tax or, more recently, £1,495, and found it necessary, in effect, to "deconstruct" the premiums and only allowed £621.13. Permission was given to leapfrog the appeal to the Court of Appeal. The "deconstruction" route was also applied in Ashworth -v- Peterborough United Football Club Limited, but there a premium of £45,937.50 was allowed in full.

There is a second group of Claims Direct cases waiting to be heard by Master Hurst, considering the referral fee.

A decision as to the reasonableness of the Accident Group (TAG) premium is expected in early 2003.

Whether Accident Group representatives can advise a client of the pre-agreement information and explanation, which has to be provided in accordance with the regulations, was the subject of the decision in English -v- Clipson. At the first instance, it has been held that this requirement cannot be delegated by the solicitor and so the Conditional Fee Agreement entered into after representations from a non solicitor breached the regulations and there was no right to recover the ATE premium or enforce the Conditional Fee Agreement. Master Hurst has now held in The Accident Group Test Cases that the task of explaining the CFA to a client can be delegated to employees of Accident Group.

In Sarwar -v- Allam (RTA case) the Court gave some guidance as to the nature of the enquiries that a solicitor should make into the availability of before the event (BTE) cover. The solicitor should ordinarily ask the client passenger to obtain a copy of the driver’s insurance policy if reasonably practical, and the client should be asked to bring along to the first interview any relevant insurance policy, household policy and any stand-alone BTE policy.

Initially, the Courts seemed to be taking a strict view even if the breaches of the regulations could be described as technical. In Woods -v- Chaleff (decided under the 1995 Regulations) the CFA did not confirm that a legal representative had fulfilled his obligation to give his client the prescribed information before the CFA was entered into. In Tichband -v- Hurdman the CFA failed to state that the total costs recoverable were not limited by reference to damages. Failure to comply with the regulations in both cases made the CFA unenforceable and the claimant had no liability to pay the solicitor for work done after the date of the conditional fee agreement.

In Dunn -v- Ward technical arguments failed. The requirement to inform a client whether the solicitor has an interest in recommending a particular insurance does not mean solicitors have to inform the client when they have no such interest, and the written explanation of the CFA can be included in the CFA itself.

A possibly unworkable approach has been adopted by the Court regarding the disclosure of the CFA. In Worth -v-McKenna the Court held there was no automatic right to see the Conditional Fee Agreement. This was followed in Dunn -v-War d and Pratt -v- Bull when it was not enough for the Defendant to merely assert points in dispute as to non-compliance. The paying party had to show evidence.

This may be impossible in many cases if the CFA is not disclosed. Leave to appeal to the Court of Appeal has been granted in all three cases.

The position with Collective Conditional Fee Agreements ("CCFA") is no better. Master Hurst is considering the recoverability of success fees and insurance premiums, and possible breaches of the Transitional Arrangements which invalidate the CCFA.

In the background, there are also the preparations for the introduction of pre-issue predictable (fixed) costs for simple cases that settle for less than £10,000. As most of the guidance on CFAs from the Court of Appeal so far has related to this type of case, we may be faced with a further round of satellite litigation on Conditional Fee Agreements.

It is over two years since the introduction of the new Regulations that allowed for the recoverability of success fees and insurance premiums from the paying party. There are a number of appeals pending and more technical challenges being made to Conditional Fee Agreements. Further Satellite litigation seems likely and uncertainty remains as we draw to the close of 2002.