Costs—Order for costs—conditional fee agreement

Queen’s Bench Division (Administrative Court)
Irwin J
19 June 2007

The court has upheld the validity of a conditional fee agreement (CFA) and preceding letter, in doing so dismissing the defendant’s argument that each claimant ought to have been told, or told more clearly, of the costs protection they would obtain with public funding.

Mark Friston (instructed by Dickinson Dees LLP) for the authority.
Roger Mallalieu (instructed by McGrath & Co) for the claimants.
The claimants were represented by the same firm of solicitors in litigation against the defendant local authority. They were of modest means. They all signed the firm’s CFA, which was designed with a view to common housing litigation against the authority. It provided that in a small claim where the client recovered damages but without a costs order, (i) if the compensation was £3,000 or less the solicitors would charge either their usual costs calculated on an hourly rate, or £1,000 plus VAT, whichever was the lower; and (ii) if the compensation exceeded £3,000 the normal fees would be payable save that the solicitors’ charges could not be more than one third of the damages. In each case the CFA was preceded by a letter (referred to as L47E) which advised that the client could apply for public funding if they had a good prospect of success and was likely to recover costs; but that at the time of the letter the firm’s “best advice” was not to do so and to proceed under a CFA. The authority questioned the enforceability of the CFA.

It submitted that the claimants could have taken advantage of public funding, and their collective failure to do so was evidence of a breach of r 4 of the Conditional Fee Agreements Regulations 2000, (SI 2000/692); and second, the construction of the CFA breached s 58 of the Courts and Legal Services Act 1990, in that the conditional loss of the discount was a success fee and the solicitors had failed to comply with the statutory requirements thereof. Both counsel agreed that the L47E letter was in error in advising clients that fees incurred under the legal help scheme would be recouped by legal aid, though the error was understandable given the wording of the regulations. It was disputed whether that error was material. The master concluded that the L47E letter had discharged the solicitors’ obligations under the regulations and that the error had not rendered the letter non-compliant. The authority appealed.

IRWIN J:

Section 58(2)(b) provided that a CFA “provides for a success fee if it provides for the amount of any fee as to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances”.

His Lordship held that the “fees and expenses” referred to in s 58(2)(a) were the normal fees and expenses which would be chargeable in the absence of any CFA. That was all the more evident in the kind of case with which the CFA in the instant case was concerned, where fast track cases were the subject of an agreed standardised costs regime.

The matter went further, however. The basis of the authority’s submission was that, for the claimants, the market rate was the reduced level of fees for which they were liable under the agreement. The margin between that reduced level of fees and the “normal” level of fees was a liability to which the claimants would not be prepared to expose themselves. By that route, it was said, the reduced “fees and expenses” were the “fees and expenses” within s 58(2)(a), and the margin of fees up to the level which would be charged in the same case to a private client of reasonable means represented the success fee. The problem with that analysis was that it would apply to almost every CFA entered. It could almost always be said that the client had only entered the agreement because of their reduced exposure. That could not have been the intention of Parliament.
His Lordship considered, inter alia, Sharratt v London Central Bus Co Ltd and other appeals (The Accident Group Test Cases); Hollins v Russell and other appeals [2003] EWCA Civ 718, [2003] 4 All ER 590.

He turned to the agreed error about costs in the letter. He held that an error which was understandable in human terms, and was derived from particularly obscure and poorly drafted regulations, could not constitute reasonable advice by a lawyer to a client. However understandable it might be for a solicitor to be baffled or misled by such a regulation, it could not ever be “reasonable” to give wrong advice on the law.
Moreover, erroneous advice about the law could not be neutralised or abolished on the basis that a letter of advice to clients was otherwise careful, full and reasonable.

The question then arose about whether the failure was “material”. His Lordship agreed with the master that it was not. It had no material effect on the protection afforded to the client or on the proper administration of justice.
He turned to the question of the alleged failure to give the client adequate information about the costs protection available, if publicly funded. The letter of advice had to be looked at in the round. One of the main themes throughout the letter was the risk of being liable for costs. That risk was explained in many passages and any reasonable client reading the letter would have been fully alive to that risk.

Public funding was extremely unlikely to have been available to any claimant until the case was allocated to the fast track. Save in very exceptional circumstances, public funding would not be granted otherwise. The direct advice in the letter was that, if and when a case was allocated to the fast track, the claimant should try for public funding.

The letter made two key points: first, that a public funding certificate provided a measure of protection against adverse costs and second, that once the case had been allocated to the fast track, the claimant should seek public funding. The master was right to conclude that on that matter the letter complied with r 4.

The appeal would therefore be dismissed.