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Jean-Yves Gilg

Editor, Solicitors Journal

Practice trends: personal injury

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Practice trends: personal injury

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Recent judgments have only embittered the costs war between personal injury claimant lawyers and insurers, says Patrick Allen. Now the Court of Appeal has the opportunity to bring reason into chaos; failing that, the government should take action

THE SO-CALLED COSTS war in personal injury cases began shortly after the Access to Justice Act 1999 came into force in 1990. Liability insurers did not like the additional costs of success fees and after the event (ATE) insurance premiums which the government passed over to them to sweeten the pill of abolishing legal aid. As Lord Justice Brooke put it in Hollins v Russell [2003] EWCA Civ 718, ' Defendant liability insurers,. . . have viewed with disfavour the increased financial burden imposed on them by a combination of the 'front-end loading' of the Woolf reforms and the new liability to pay ATE premiums and success fees to successful claimants . . . and have seized the opportunity of challenging the enforceability of many CFAs by pointing to breaches of one or more of the 'conditions applicable to it'.

The Costs War raged at full force. Callery v Gray [2001] EWCA Civ 1117, [2001] 1 WLR 2112 June 2002 (success fees) in the House of Lords and Sarwar v Alam [2001] EWCA Civ 1401 September 2001 (Before the Event (BTE)) in the Court of Appeal did not bring about a ceasefire.

Insurers found ingenious ways of challenging recoverability due to the extremely onerous conditions laid down in the Costs Regulations (the Conditional Fee Agreements Regulations 2000 (SI 2000 No 692) . Breach of any one might make the CFA unenforceable.

The government was not pleased by this turn of events. Lady Scotland, then parliamentary secretary at the LCD (before it became the DCA and the MoJ), deemed the insurers' challenges unacceptable in a speech to the APIL conference in 2003. 'New legislation is invariably scrutinised and its parameters tested. However, what occurred went well beyond this and has been unreasonable and destructive. It is ironic that the controls we were asked to put into the April 2000 regulations . . . to protect the consumer from unscrupulous solicitors have been utilised to attack claimant solicitors costs.'

Two-prong approach

Two prongs were brought to bear on these tactics as the Court of Appeal in May 2003 heard a series of cases on technical challenges (Hollins v Russell [2003] EWCA Civ 718). The court decided that costs judges should ask: 'Has the particular departure from a regulation or requirement in section 58 . . . had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?'. CFAs were now to be routinely disclosed but it was unlikely that defects would matter very much.

The government decided that the complicated regulations laid down to protect claimants were not necessary or effective and to a large extent duplicated existing professional regulation. They abolished them.

From November 2005, a CFA has to be in writing, cover permitted proceedings and, well, that was about it in terms of strict requirements. Other conduct issues are regulated by the Law Society's Professional Rules.

End of cost war '“ afraid not. The CFA Regulations 2000 continued to have effect for the purposes of conditional fee agreements entered into before 1 November 2005.

The hydra grew new heads: Garrett v Halton Borough Council dealt with regulation 4(2)(e)(ii) (disclosure of 'an interest' by a solicitor when recommending an insurance policy) and Myatt v National Coal Board regulation 4(2)(c) (advising a client about BTE insurance, [2006] EWCA Civ 1017 and 1018.

Here was a great opportunity to snuff out the new smoking embers. Unfortunately, the judgment added petrol to the flames and was greeted with dismay by claimant lawyers for three reasons:

  • Victimless crime approved '“ Lord Justice Dyson poured scorn on the idea that a breach was not material because there had been no detriment to the client. The starkest example is the punishment for solicitors who fail to ask the right questions on whether there is alternative insurance such as BTE even though it is later proved that no such policy exists. Rules have to be enforced with vigour which involves punishing solicitors 'pour encourager les autres'. Asking a client if they had existing insurance to cover the current case was deemed to be the wrong question in most cases.
  • Guidance on future conduct '“ the 'encouragement' on how the rules would be enforced has come after the rules have been abolished and therefore has no application to future conduct.
  • Disproportionate '“ a breach of the regulations results in the solicitor losing all costs and disbursements, not, for example failure to recover the success fee ATE premium.

Although the complex rules were scrapped in 2005, it is the bigger pre-2005 cases which are now coming to the surface as they settle after a number of years of litigation. The cost challenges are typically on BTE or alleged failure to disclose an interest in an ATE policy.

The Supreme Court Costs Office website is highly recommended for those checking on the latest judgments '“ 19 are listed on the question of enforceablility of CFAs alone.

In Woolley v Haden Building Services Ltd [2008] EWHC 90097 (Costs), the solicitor with conduct of the case was cross examined for four hours about what he said to the widow of an asbestos victim about her household insurance policy on Christmas Eve 2002. No breach of the rules was found and costs of £244,000 will be recoverable.

The question of declaring an interest in recommending an ATE policy is now focusing on the Law Society approved and badged Accident Line Protect. Two cases are proceeding to the Court of Appeal '“ Puksis v Brumby [2008] EWHC 90095 (costs '“ no breach costs allowed) and Jones v Attrill [2008] CC (Southampton) (District Judge Dancey) 25 February 2008 (breach '“ no costs allowed).

It is fair to say that most solicitors interpreted 'disclosing an interest' as telling clients where a commission was payable to the solicitor by the insurer on the policy. However, the meaning has widened to informing clients about membership of panels which require solicitors to use a particular policy. This was never clarified or envisaged at the time.

Tied financial advisors have to recommend their company's products, some of which will be average performers affecting all clients who purchase them. However, the tied CFA policy usually has an insured premium and only comes into force in the event of a failed case, which in PI cases happened rarely.

Thus, while some judges express concern about clients not being given the opportunity to shop around if they are unhappy about the tie in, surely this is wildly unrealistic. One only has to imagine the typical client being given complete disclosure and wondering what they would do with it '“ 'You mean your panel membership means you have to sell me this (Law Society recommended) policy which I will probably never have to use and will never pay for? No thanks, I am going elsewhere to get a truly independent free standing policy'.

What is to be done?

Satellite litigation over costs has irritated the courts and brought the law into disrepute. Windfalls to insurers for alleged breaches of client protections are giving the law a bad name where clients are completely satisfied with the outcome of their case.

Action lies with insurers who authorise the bringing of test cases, the Court of Appeal and the government. There is little hope that insurers will back off voluntarily. For them it is a question of money not morals. If a case can be brought and has a chance of winning they will bring it.

The Court of Appeal arguably has the greatest chance of killing off the hydra. Hollins and Russell was a good stab but did not go far enough. Garrett and Myatt made things worse.

With the latest cases, the Court of Appeal has the chance to put things right once and for all, changing the law if necessary on the Garratt and Myatt dicta. Surely reason and fairness dictates that :

There should be no remedy for insurers where there is an alleged or theoretical breach but no detriment to the client.

In significant breach cases, the remedy should be proportionate, for instance if ATE was sold where a perfectly good BTE exists and would have done the job, the ATE premium and success fee should not be recoverable, but the other costs and disbursements which would always have been necessary should be paid.

As Lord Justice Brooke said in Hollins v Russell: 'The parliamentary purpose is to enhance access to justice, not to impede it, and to create better ways of delivering litigation services, not worse ones. These purposes will be thwarted if those who render good service to their clients under CFAs are at risk of going unremunerated at the culmination of the bitter trench warfare which has been such an unhappy feature of the recent litigation scene.'

If the Court of Appeal does not find a way of putting these fine words into effect, the government should legislate.

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