Hughes v George Major Skip Hire Ltd & Anor [2009] EWHC 90147 (Costs)

[2009] EWHC 90147 (Costs)Case No AGS/0900982IN THE HIGH COURT OF JUSTICESUPREME COURT COSTS OFFICEVenue Clifford’s Inn, Fetter LaneLondon, EC4A 1DQDate 3 July 2009
Before
MASTER GORDON-SAKER
Between
LEANA HUGHESClaimant(1) GEORGE MAJOR SKIP HIRE LIMITEDDefendants(2) PHILIP HUGHESDefendant
Mr Mark Friston (instructed by Express Solicitors) for ClaimantMr Alexander Hutton (instructed by Hill Dickinson LLP&Weightmans LLP) for First and Second DefendantsHearing Hearing date: 9th June 2009
Judgment

Master Gordon-Saker :

[1]This judgment relates principally to one issue that has arisen on the detailed assessment of the Claimant’s bill of costs, namely: whether the conditional fee agreement entered into by the Claimant with Express Solicitors is unenforceable by reason of a failure to comply with regulation 3(1)(b) of the Conditional Fee Agreements Regulations 2000. The Defendants contend that the agreement failed to specify how much of the success fee related to the cost to the solicitors of the postponement of their fees and expenses.[2]The detailed assessment proceedings were commenced in Liverpool County Court but, by agreement between the parties, they were transferred to the Supreme Court Costs Office. The order transferring the proceedings did not however transfer them to the High Court. Accordingly at the start of the detailed assessment hearing in London I sat in my capacity as a Deputy District Judge of the Liverpool County Court. After inviting submissions I decided to transfer the proceedings to the High Court having regard to the issues that had been raised and the amount that was at stake.

The background

[3]The Claimant suffered very serious injuries when a motorcycle upon which she was travelling as a pillion passenger collided with an unlit skip during the hours of darkness on 4th September 2001. The motorcycle was being ridden by her husband.[4]Within a very short time of the accident and while still in hospital the Claimant, through her father-in-law, made contact with Express Solicitors who had been recommended to her by a former work colleague. On 18th September 2001 Mr Robin Patey, then a trainee solicitor at the firm, attended the Claimant in hospital to take her instructions. It is clear from Mr Patey’s attendance note that the Claimant was very worried about the effect that the accident would have on her financial situation. She was then aged about 23 years, had married earlier that year and worked as a supply teacher. Her husband had also suffered serious injuries in the accident and had also been detained in hospital.[5]Two days later, on 20th September 2001, Mr Patey wrote letters of claim to George Major Skip Hire Limited, the owner of the skip (and which subsequently became the First Defendant), and to the Claimant’s husband (who subsequently became the Second Defendant).[6]On the same day he wrote to the Claimant, care of her father-in-law, enclosing two copies of a draft conditional fee agreement. In the covering letter he asked her to sign one copy and return it to him. He also telephoned the Claimant that day and in a conversation recorded as lasting one hour he explained the conditional fee agreement to her.[7]The Claimant signed the agreement and returned it to Mr Patey while she was still in hospital. Indeed she remained in hospital until 23rd October 2001.[8]Proceedings were issued on 23rd August 2004 – shortly before the expiry of the limitation period. The Defendants admitted negligence but denied causation and loss. Eventually it was agreed that the First Defendant was 75% to blame for the accident and the Second Defendant 25% to blame. Judgment was entered for damages to be assessed. The assessment of damages was listed for 12th March 2008 with a time estimate of 4 days. However a few days before the hearing the parties agreed terms that the Defendants should pay the Claimant damages of £500,000 net of recoverable benefits together with her costs.

The conditional fee agreement

[9]The agreement is expressed to cover only “Your claim against Mr Philip Hughes for damages for personal injury suffered on 4th September 2001”. During the detailed assessment it was agreed between the parties that the Claimant would not be entitled as against the First Defendant to costs incurred under the conditional fee agreement. I am told that counsel will be preparing a note of the precise terms of the agreement reached. It was also conceded by the Claimant’s solicitors during the hearing that the Claimant was not entitled to recover the costs claimed in Part 1 of the bill, which were incurred before the conditional fee agreement was entered into, because the agreement did not cover work that had already been carried out.[10]Under the heading “Paying us” the agreement provided: If you win your claim, you pay our basic charges, our disbursements and a success fee. The amount of these is not based on or limited by the damages. You are entitled to seek recovery from your opponent of part or all of our basic charges, our disbursements, a success fee and insurance premium.[11]Under the heading “Success fee” the agreement provided: This is 50% of our basic charges. The reasons for calculating the success fee at this level are set out in Schedule 1 to this agreement. You cannot recover from your opponent the part of the success fee that relates to the cost to us of postponing receipt of our charges and disbursements (as set out in paragraphs (a) and (b) at Schedule 1). This part of the success fee remains payable by you.[12]Schedule 1 provided: The Success Fee The success fee is set at 50% of basic charges and cannot be more than 100% of the basic charges. The percentage reflects the following:(a) the fact that if you win we will not be paid our basic charges until the end of the claim;(b) our arrangements with you about paying disbursements;(c) the fact that if you lose, we will not earn anything;(d) our assessment of the risks of your case. These include the following: (i) need to obtain police report and speak with investigating officer; (ii) need to interview all appropriate witnesses; (iii) need full sketch plan and photographs of accident locus; (iv) allegation of negligence – public nuisance may be difficult to establish in view of relevant authorities;(e) any other appropriate matters. The matters set out at paragraphs (a) and (b) above together make up 50% of the increase on basic charges. The matters at paragraphs (c), (d) [and (e)] make up 50% of the increase on basic charges. So the total success fee is 50% as stated above. The Success Fee The percentage reflects the following: (i) need to obtain police report and speak with investigating officer; (ii) need to interview all appropriate witnesses; (iii) need full sketch plan and photographs of accident locus; (iv) allegation of negligence – public nuisance may be difficult to establish in view of relevant authorities;

The percentage reflects the following:

[13]It is this last paragraph which forms the basis of the Defendants’ challenge.[14]The agreement incorporated the Law Society Conditions, which include in clause 4 under the heading What happens if you win?: If you and your opponent cannot agree the amount, the court will decide how much you can recover. If the amount agreed or allowed by the court does not cover all our basic charges and our disbursements, then you pay the difference. … You remain ultimately responsible for paying our success fee. You agree to pay into a designated account any cheque received by you or by us from your opponent and made payable to you. Out of the money, you agree to let us take the balance of the basic charges; success fee; insurance premium; our remaining disbursements; and VAT. You take the rest.

The evidence

[15]Although no directions were given either here or in Liverpool County Court as to the filing of evidence or the cross-examination of witnesses, the Claimant’s solicitors filed witness statements of Mr Patey and of the Claimant.[16]While it was the Defendants’ intention to cross-examine both the Claimant and Mr Patey (see Mr Hutton’s skeleton argument at paragraph 8), I was told by counsel at the beginning of the hearing that it had been agreed that the Claimant should not attend for cross-examination. I was grateful for that, for at paragraph 9 of her statement dated 24th April 2009 the Claimant explains: I am pregnant at the present time and this ongoing dispute with the insurance companies is causing me further stress and anxiety at a time when I thought I was now able to put the whole thing behind me.[17]Requiring the Claimant to come down to London to be cross-examined in a costs hearing about what she knew or did not know in 2001 as she lay in hospital with serious injuries would, to my mind, have been inappropriate in satellite litigation. Mr Patey alone attended the hearing for cross-examination.[18]The essential gist of the Claimant’s statement is that she believes that Mr Patey “did a fantastic job” for her and she had a “very straightforward” understanding of the costs arrangements with her solicitors, namely that she “would get 100% of my compensation”: At no stage was it suggested to me that I would have to pay any success fee for the fact that my solicitors would not be paid until the end of the case. (para 15) There was never any doubt in my mind that I wouldn’t have to pay anything and that the insurance companies would pick up my entire bill. (para 17)[19]In his witness statement Mr Patey explained: At this time, and it remains the case to this date, it was my firm’s policy not to charge to Claimants, and that applies to Mrs Leana Hughes, that element of the success fee on a CFA case which reflects the fact that if the case is won Express Solicitors would not be paid basic charges until the end of the claim and reflects the fact that we do not seek payment from clients on account of disbursements. (para 8) I explained to Mrs Hughes, in accordance with my firm’s policy, that in the event that her personal injury claim was successful she should keep 100% of her compensation. I went on to explain that in the event that her claim failed there would be nothing for her to pay and in the event that the claim succeeded there should be nothing for her to pay beyond those costs and disbursements that were recovered from the Defendants. (para 11)[20]At paragraph 12 Mr Patey stated that he had explained to the Claimant that it was his firm’s policy not to enforce against a client those costs which could not be recovered from the Defendants except where the client had misled them or had failed to cooperate. At paragraph 13 he stated that he had never asked a client to pay any element of the success fee in a CFA personal injury case. At paragraph 14 he explained that he had decided to apply a success fee of 50% in this case and then at paragraph 15: Unfortunately, in the final paragraph of Schedule 1 there is a typing error in the first sentence, which does not properly reflect the agreement I reached with Mrs Hughes. That sentence should read “The matters set out at paragraphs (a) and (b) above together make up 0% of the increase on basic charges”. It was my practice at the time, and remains my practice to this day, to apply 0% of the success fee to factors (a) and (b) as set out in the Conditional Fee Agreement.[21]At paragraphs 17 to 19 Mr Patey explained that the agreement had been prepared by an experienced legal secretary who for some unknown reason had “typed the figure 5 in front of the digit 0 in the first sentence of the final paragraph of Schedule 1”.[22]In the course of cross-examination Mr Patey explained that it was he who had signed the agreement on behalf of his firm, although he was then only a trainee solicitor. He disagreed with some of the Claimant’s evidence. He said that he explained to her that she was liable for his firm’s costs, including any shortfall, but that if he were asked about any shortfall he would have said that it was not his firm’s policy to claim it.[23]Mr Patey seemed to me to be an honest witness who was trying to do his best to provide an accurate recollection of events that happened nearly 8 years ago and there is no reason why the court should not accept his evidence as truthful. As he was cross-examined on his evidence it seems to me that I have to accord it more weight than the evidence of the Claimant. While I am sure that the Claimant’s statement records her honest recollection, it is a recollection of matters which occurred within about 2 weeks of the accident, when she was in hospital suffering from serious injuries. Mr Patey told me that the Claimant was “on painkillers”, and he thought morphine, at the relevant time. Insofar as it may be relevant, where there is a conflict between the evidence of the Claimant and the evidence of Mr Patey, I would have to prefer the evidence of Mr Patey.

Regulation 4 compliance

[24]In the course of submissions Mr Hutton sought to argue that the Claimant’s evidence raised a genuine issue as to whether there had been compliance with regulation 4 of the 2000 regulations; in particular the obligation to inform the client of the circumstances in which she may be liable to pay the costs of the legal representative in accordance with the agreement (regulation 4(2)(a)) and the obligation to explain the effect of the agreement (regulation 4(3)).[25]As I understood it his argument was based on the Claimant’s evidence that she would not have to pay or be liable for any costs, which, on any interpretation of the agreement, is incorrect. I indicated to Mr Hutton that as I would have to prefer the evidence of Mr Patey as to the explanation that he gave to the Claimant I was not satisfied that a genuine issue had been raised such as to require further investigation. Mr Patey’s evidence was that he explained the agreement according to his understanding of what it provided in ignorance that there had been a typing error. I will return to the question of regulation 4 compliance at the end of this judgment in the light of my findings on regulation 3 compliance.

The Defendants’ argument

[26]Regulation 3(1) of the Conditional Fee Agreements Regulations 2000 provided: 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 cost to the legal representative of the postponement of the payment of his fees and expenses.[27]Mr Hutton submitted that the agreement in this case was “a mess”. If I may quote from his skeleton argument: 16. However, the CFA, having informed the client that she would not be able to recover the “postponement element” in two separate places, specifies in Schedule 1 that the success fee is a total of 50%, that the factors in (a) and (b) – the irrecoverable postponement element – make up 50% of the increase on basic charges and the elements at (c), (d) and (e), “the risk elements”, also make up 50% of the increase, so the increase is 50%. 17. At paragraph 6 of the Points of Dispute, it is pointed out that the position is not clear and it could be:(a) The 50% is attributable to postponement and therefore paid personally by the Claimant; or(b) The 50% is attributable to all of the matters other than postponement and the Claimant does not have to pay any part of the success fee; or(c) A success fee of 25% relates to the postponement and the other 25% relates to matters other than postponement. 18. The position is entirely unclear on its face: it could be any of those possibilities. The Claimant is thus left in the position of being unaware what element, if any, of the success fee is attributable to the postponement element. There is a plain and obvious breach of Regulation 3(1)(b) which requires the postponement element to be specified in the CFA.[28]He relied on the decision of Blake J. in Utting v McBain [2007] EWHC 3293 (QB) and the decision of the Court of Appeal in Spencer v Wood [2004] EWCA Civ 352. In both cases the conditional fee agreement failed to specify what proportion of the success fee related to postponement of payment. In each case there was held to be a material breach of the regulations. He also referred to the decision of the Senior Costs Judge in Brennan v Associated Asphalt [2006] EWHC 90052 (Costs) in which Master Hurst said at paragraph 29: In my judgment Regulation 3(1) of the 2000 Regulations is perfectly clear. The CFA must specify how much of the percentage increase relates to the cost of postponement. In my view the words “if any” do not mean that if the deferral element is nil there is no need to mention it. Those words are there to ensure that the client is left in no doubt as to the position, even if the deferral element is nil. In those circumstances I find that there has been a breach of the Regulation.[29]Mr Hutton submitted that in the present case the agreement was so unclear “that the client does not know where she stands”. As to Mr Patey’s evidence that there was simply a mistake in the agreement and that there was no intention to charge a postponement element, he submitted that such evidence was inadmissible, relying on the decision of the House of Lords in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, and in particular the well known passage in the speech of Lord Hoffmann at p.912G where he summarised “the principles by which contractual documents are nowadays construed” as:(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meaning of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.

The Claimant’s argument

[30]On behalf of the Claimant Mr Friston submitted that the Court should attempt to interpret the meaning of the agreement before deciding whether it complied with the regulations. Clearly, he submitted, there had been an easily identifiable typographical error.[31]He suggested that there are 3 categories of cases of non-compliance with regulation 3(1)(b). First, where there had been a complete failure to state whether there was a postponement charge. Most of the reported cases fell into this category. Second, where there had been a partial failure to state whether there was a postponement charge, such as where there was a blank space in the agreement but other material which might fill it. He suggested that Spencer v Wood fell in this category. Third, where there is some form of contradiction which places a question mark over the postponement charge specified. He suggested that the present case falls into this category – one starts with a clear statement of what the postponement charge is (“50% of the increase on basic charges”), but there is then a contradiction which requires the court to take into account extrinsic aids to interpretation. In that way he sought to distinguish the other reported cases which had involved a failure to comply with regulation 3(1)(b).[32]He relied on the decision of the Court of Appeal in Tichband v Hurdman, one of the cases heard under the umbrella of the rather better known Hollins v Russell [2003] EWCA Civ 718. Brooke LJ described the relevant issue (and the result) in Tichband quite briefly:131. In Tichband v Hurdman the motorist’s insurers also relied on a point under regulation 3(1)(b). Under this regulation the CFA was required to specify how much of the percentage increase (by way of success fee), if any, related to the cost to the legal representative of the postponement of the payment of his fees and expenses. This has to be specified because under the Costs Rules this part of a success fee cannot be recovered from the paying party (see CPR 44.3B(1)(a)).132. The point the defendants’ insurers sought to take (and on which they succeeded before Judge Holman) is as unattractive as it is unmeritorious. Clauses 32 and 33 of this CFA are headed “Success Fee” and read:
“32. The reasons we have set the success fee at the level stated are explained on the Risk Assessment form attached to this agreement. We will not seek to recover from you any of the success fee which we are unable to recover from your opponent. 33. None of the success fee is attributable to the postponement in paying our fees.” 133. The amount of the percentage uplift on the solicitor’s basic charges was omitted from the first page of the CFA. The Risk Assessment form, however, makes it clear that there is to be a total success fee of 45%, made up of one component of 15% and six components of 5% each. One of the latter represents the cost of postponing payment of the solicitor’s costs until the end of the case. 134. Mr McLaren was compelled to admit that as between solicitor and client no court would dream of allowing the solicitor to recover this 5% from his client when he was necessarily unable to recover it from the paying party due to the operation of CPR 44.3B(1)(a). The language of Clause 32 makes this clear. The reality therefore is that, despite what is said in the risk assessment calculation, none of the recoverable success fee is attributable to the postponement in payment of the solicitor’s fees. Taken together, Clauses 32 and 33 prevail over the risk assessment schedule, and thus on its true construction the CFA in this case complies with the Regulations. 135. For these reasons we also allow the claimant’s appeal in Tichband v Hurdman. The order of Judge Holman must therefore be set aside. “32. The reasons we have set the success fee at the level stated are explained on the Risk Assessment form attached to this agreement. We will not seek to recover from you any of the success fee which we are unable to recover from your opponent. 33. None of the success fee is attributable to the postponement in paying our fees.”
[33]While both counsel sought respectively to rely on and distinguish the facts of Tichband, perhaps the real relevance for the purpose of Mr Friston’s argument is that it shows some willingness by the Court of Appeal to interpret the agreement in order to reach the conclusion that on its true construction the CFA in this case complies with the Regulations.

Sidhu v Sandhu

[34]I was referred to a large number of authorities, contained in 3 bundles. To attempt to summarise them all would be unfair on any subsequent reader of this judgment.[35]However, following the hearing, my attention was drawn to the judgment of Burton J in Sidhu v Sandhu delivered on 5th May 2009. The decision is unreported and if the judgment has yet been transcribed, no transcript is available to me. Fortunately Master Campbell, who sat as one of the assessors in Sidhu, has kindly made his note of the judgment available (which note will be published as a Supreme Court Costs Office case summary). I sent copies of the note to both counsel and I have had the benefit of their subsequent written submissions.[36]In Sidhu the conditional fee agreement provided that the success fee was “set at 14.5% of basic charges”. Schedule 1 then went on to provide: The percentage takes into account:(a) the risks inherent in litigation;(b) the risks in your particular case;(c) that we have given you a significant discount on our standard hourly rates:(d) that we have agreed to accept that we may not recover the success fee;(e) the additional risk factors we have identified. The matters set out in paragraphs (a) and (b) above together make up 60% of the increase on the basic charges. The matters at paragraphs (c), [(and (d)] make up 40% of the increase on the basic charges. So the total success fee is 14.5% as stated above.

The percentage takes into account:

[37]It will be noted immediately that there is a factual similarity with the present case in that a similar approach is taken to the arithmetic.[38]Master Campbell’s note continues: On detailed assessment, the paying party (D) contended that the CFA was unenforceable for failure to comply with Regulation 3(1)(b) having omitted to specify how much of the percentage increase (if any) related to the cost to the legal representative of the postponement of the payment of his fees and expenses. Below, the Master had held that the words “if any” related to the words “how much” and if, as was the case, that figure was nil, it should have been stated within the body of the CFA. Accordingly the CFA was unenforceable. Burton J held that if the postponement element was nil, there was no need for this to be specified unless doubt existed as to the construction of the agreement, in which case it would be necessary for the court to consider the full construction of the CFA. On the facts before him, the Judge was satisfied that there was doubt as to the construction of the CFA and, in these circumstances, it was necessary for him to decide whether the CFA had contained a sufficiently explicit statement that there was to be no charge to the client for postponement. Burton J was satisfied that Schedule 1 excluded any allowance for the deferment of fees by expressly providing that the matters mentioned under paragraphs (a) to (d) amounted to 100% of the success fee. He expressed himself to be much influenced by the decision of the Court of Appeal in Tichband v Hurdman (see Hollins v Russell [2003] 1 WLR 2487 at paragraphs 131 – 134). On the facts, he was also satisfied that the position about postponement had been made sufficiently clear and that clause 3 of the CFA, schedule 1 and paragraph 3(m) of schedule 2 prevailed over all the countervailing clauses. CFA enforceable. Appeal allowed.

Interpretation before compliance

[39]It seems to me that the Court has to discern the meaning of the agreement before it can decide whether the agreement complies with the regulations. The cases to which I was referred included a number of examples of the apparent willingness of the courts to interpret the agreements before considering compliance: Tichband (where the Court of Appeal considered that the agreement “on its true construction” complied with the regulations) Utting and Sidhu.

What evidence can the Court consider when interpreting the agreement?

[40]Sub-section 58(3) of the Courts and Legal Services Act 1990 provides that a conditional fee agreement “must be in writing”. Accordingly, it seems to me that the court cannot receive extrinsic evidence “which is offered for no other purpose than to contradict, vary, add to or subtract from the contract as contained in writing”: Chitty on Contract (30th ed.) 12-101. Nor is the court entitled to receive evidence of the parties’ subjective intentions: ibid 12-119. In my judgment the evidence of the Claimant and of Mr Patey as to what, if anything, was agreed about a postponement charge may be admissible in an action for rectification but it is simply not admissible for the purpose of interpreting the conditional fee agreement.[41]I should mention that the Claimant and her solicitors entered into a deed of rectification shortly before the detailed assessment hearing. However it was conceded on behalf of the Claimant that I have no power to order rectification and I was told that the deed was relied on simply as evidence that there had been a mutual mistake. It seems to me that the deed is as inadmissible as an aid to the interpretation of the agreement as are the witness statements.

Interpretation of the agreement

[42]As an alternative to rectification it was submitted on behalf of the Claimant that the mistake was capable of resolution by construction. In East v Pantiles Plant Hire Ltd [1982] 2 EGLR 111, Brightman LJ said (at p 112): It is clear on the authorities that a mistake in a written instrument can, in limited circumstances, be corrected as a matter of construction without obtaining a decree in an action for rectification. Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument: secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction. If they are not satisfied, then either the Claimant must pursue an action for rectification or he must leave it to a court of construction to reach what answer it can on the basis that the uncorrected wording represents the manner in which the parties decided to express their intention.[43]Both parties in the present case have proceeded on the basis that there is some infelicity in the wording of the last paragraph of schedule 1. Their emphasis is different: the Claimant says that there is a typographical mistake; the Defendants say that the paragraph is unclear and capable of at least 3 meanings. In addition to the 3 possible interpretations suggested by Mr Hutton, during the course of the hearing I suggested a fourth: that there was a 50% success fee for postponement and a 50% success fee for risk but that the solicitors had limited themselves to a total of 50%, waiving the balance. But these submissions (and my suggestion) were all predicated on the basis that the first and second percentages in the paragraph should add up in aggregate to the third percentage.[44]It may be thought that this was a false premise. While the success fee is defined in the agreement as a percentage “of basic charges”, in the last paragraph of schedule 1 the first two percentages are not percentages “of basic charges” but “of the increase on basic charges”; or, in other words, arguably, percentages of the success fee.[45]So in the present case the last paragraph of schedule 1 could be construed as providing that the success fee is 50% and that one-half of that 50% reflects the matters set out at paragraphs (a) and (b) and the other half reflects the matters at paragraphs (c), (d) and (e). The difficulty with that interpretation is the last sentence of the paragraph: So the total success fee is 50% as stated above. To my mind the word “so” suggests some aggregation of what goes before it.[46]In Sidhu it would appear that nobody argued or pointed out (whether before the Master or before the Judge on appeal) that there was a similar mistake in the last paragraph of schedule 1. But I am not sure that I can draw much from that. It may be that they considered that there was no mistake. It may be that minds were concentrated solely on the issue on the appeal. I merely observe that in this case there was a whole day of argument about the wording of a paragraph which in Sidhu caused nobody to bat an eyelid.[47]In my judgment the proper interpretation of the first two percentages in the last paragraph of schedule 1 is that they are numerical rather than proportionate. That is, that they indicate the numerical parts of the percentage success fee, rather than the proportions of the success fee, that relate to the specific factors in the preceding list. Accordingly the third percentage should be the sum of the first two. On Mr Patey’s evidence, this is what he had intended: 0 + 50 = 50.[48]As it does not, there is a clear mistake on the face of the agreement. Is it clear then what correction ought to be made to cure the mistake? If I could have regard to extrinsic evidence, the answer would be “yes”. It is clear from the evidence of Mr Patey that there was no intention to charge a postponement element and that the first percentage should have been 0%. But without regard to any extrinsic evidence, one could insert any figures for the first two percentages provided that they add up to 50. I cannot say therefore that the correction which ought to be made is clear from the face of the agreement.[49]In my judgment the mistake cannot be cured by interpretation without impermissible reliance on extrinsic evidence.

Does the agreement comply with regulation 3(1)?

[50]It could be said that on the face of it the agreement does in fact specifyhow much of the percentage increase, if any, relates to the cost to the legal representative of the postponement of the payment of his fees and expenses: The matters set out at paragraphs (a) and (b) above together make up 50% of the increase on basic charges.[51]Although it was not the Claimant’s primary case that the agreement complied with regulation 3(1) without either correction of the admitted mistake or an interpretation which substituted 0% for 50%, Mr Friston submitted that the court could nevertheless conclude that the mistaken sentence complied with the letter of the regulation without such correction or interpretation. He drew a distinction between the test imposed by the regulation (“specify”) and the purpose of the regulation (consumer protection); submitting that the former was relevant to the question of whether there had been a breach, and the latter was relevant to whether the breach was material.[52]For the Defendants, Mr Hutton submitted that the purpose of the regulations is relevant to the test imposed by them. In support of that he referred to the decision of the Court of Appeal in Jones v Attrill [2008] EWCA Civ 1375. There the court was concerned with the information a solicitor had to give to his client as to whether he has an interest in recommending a contract of insurance so as to comply with regulation 4(2)(e) of the 2000 regulations. At paragraph 43 the Master of the Rolls said: In approaching this issue, we bear in mind that the purpose of the Regulations is consumer protection. This means that in general terms they must be construed in a way which will promote, rather than detract from, such protection. It means in particular that regulation 4(1)(a) and 4(2)(e)(ii) must be construed in a way which will ensure that the solicitor discloses to the client the true nature of his interest in recommending the insurance so that the client can make the necessary informed decision. This entails explaining to the client the nature of the benefits to the solicitor in remaining on the ALP panel with sufficient clarity for the client to understand what they are and to be able to assess their significance.[53]Applying that approach to the present case it seems to me that the obvious purpose of regulation 3(1)(b) is to enable the client to know what part of the success fee that he is liable to pay his solicitor in the event of a successful outcome will not be recoverable from the defendant.[54]It seems to me that the sentence The matters set out at paragraphs (a) and (b) above together make up 50% of the increase on basic charges when read with the rest of the paragraph did not provide the Claimant with that information “with sufficient clarity”. By reference only to the agreement the Claimant would not know what part of the success fee related to the postponement of payment. Was it 50% of 50% of the basic charges? Was it 50%? Was it nothing?[55]Accordingly in my judgment the agreement fails to comply with regulation 3(1)(b) because it fails to specify with sufficient clarity how much of the percentage increase, if any, relates to the cost to the legal representative of the postponement of the payment of his fees and expenses.

Is the breach material?

[56]In Hollins v Russell [2003] 1 WLR 2487 the Court of Appeal stated at paragraph 107: Costs Judges should … ask themselves the following question:
“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.

Costs Judges should … ask themselves the following question:

[57]In Garrett v Halton Borough Council [2007] 1 WLR 554 the Court of Appeal stated at paragraph 39: … in most cases the court should focus its attention principally on the terms of the CFA and the advice and information given by the solicitor and other relevant circumstances which existed at the date of the CFA and make a judgment as to whether, in the light of that material, the departure from the requirement in question had a material adverse effect on the protection afforded to the client.[58]In my judgment the failure to comply with regulation 3(1)(b) has not had a material adverse effect on the protection afforded to the Claimant. The Claimant’s evidence is that she was certain that she would not have to pay anything out of her damages. Mr Patey’s evidence is that the first “50%” in the last paragraph of schedule 1 to the agreement is a typographical error and should have read “0%”. Because of that error, the meaning of that paragraph is not clear and is open to at least the 3 possible interpretations suggested by Mr Hutton. In my judgment, as in Tichband there is not the remotest prospect that as between the Claimant and her solicitors any court would dream of allowing the solicitors to recover anything by way of a success fee in relation to the postponement of payment.[59]The Claimant knew that she would not have to pay any part of the success fee by reason of the postponement of payment; and that is and was at the material time correct.[60]Nor in my judgment has there been a material adverse effect upon the proper administration of justice. The breach in this case is the unintended result of a typing error. This is not a case of a failure to give important advice required by the regulations nor is it a violation “acting flat against the grain of the legislature’s substantial policy objectives”: Jones v Caradon Catnic Ltd [2005] EWCA Civ 1821. It is a typing error (in Jones it was expressly stated that the 120% success fee provided for in the agreement and claimed in the bill was intended and was not the result of a mathematical or administrative error): A typing error which is probably less culpable than the drafting error in Brennan in which the Senior Costs Judge also found that the breach was not material.[61]But for the point having been raised by the Defendants on the detailed assessment I have no doubt that both the Claimant and her solicitors would have proceeded on the basis of their respective understandings of the arrangements between them as described in their witness statements – understandings which are mutual on the question of whether a postponement charge would be made. There would have been no question of the Claimant being charged a success fee to reflect the postponement of payment.[62]In my judgment the breach of regulation 3(1)(b) in this case is not a material breach and accordingly the conditional fee agreement is not unenforceable by reason of that breach.

Regulation 4 compliance revisited

[63]In view of my finding that there has been a breach of regulation 3(1)(b) because the agreement failed to specify the postponement charge, it may also be thought that there must have been a breach of regulation 4 insofar as there could have been no proper explanation given to the client of what the written agreement actually provided in relation to the postponement charge.[64]I have heard no submissions on this point and I am not inviting submissions on this point because it seems to me that if there has been a breach of regulation 4 exactly the same considerations must apply as to the materiality of that breach as apply to the regulation 3 breach. Whatever the written agreement actually said, both the solicitors and the Claimant understood that there was no postponement charge and that this was the agreement between them. The advice given by Mr Patey, while not reflecting the mistaken wording of the agreement, did reflect the actual position: that there was no postponement charge and “that in the event that her personal injury claim was successful she should keep 100% of her compensation” (Mr Patey’s statement, paragraph 11). There can be no question, it seems to me, of any material adverse effect on the protection afforded to the Claimant or upon the proper administration of justice caused by a typing error of which nobody was aware until the detailed assessment of the Claimant’s costs. *****