Birmingham City Council v Crook & Ors [2007] EWHC 1415 (QB)

[2007] EWHC 1415 (QB)SCCO Ref: CCCC0600917Case No QB2006/PTA/0723
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
ON APPEAL FROM MASTER CAMPBELL
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 19 June 2007
Before
THE HON MR JUSTICE IRWINSitting with AssessorsMaster WrightMr Gregory Cox
Between
BIRMINGHAM CITY COUNCILAppellant/RICKY AND JENNIFER CROOK (and 9 others)Respondents/
Mark Friston (instructed by Dickinson Dees LLP) for AppellantRoger Mallalieu (instructed by McGrath & Co) for RespondentHearing Hearing dates: 30 April 2007
JudgmentMr Justice Irwin :Introduction
[1]This case concerns the enforceability of a conditional fee agreement (“the CFA”) which has been agreed between the claimant/respondents and their solicitors McGrath’s Compensation Claims Partnership (“McGraths”) for the purpose of housing disrepair claims against Birmingham City Council, the Appellant/Defendant. The matter was argued before Master Campbell, Costs Judge, on 31 May 2006. On 1 August 2006, an agreed note was submitted by both Counsel to Master Campbell in response to an email query from him to both sides dated 6 July 2006. The agreed note concerned the effect of the Community Legal Services (Financial) Regulations 2000. The Master handed down his judgment on 21 August 2006 and refused permission to appeal on 1 September 2006. The defendants renewed their application for permission, and were granted permission to appeal by Mr Justice Stanley Burnton on 23 October 2006. In granting permission, he certified that these are test cases suitable for decision by a High Court Judge. I have sat with and been greatly assisted by Master Wright, Costs Judge and Mr Gregory Cox, a Solicitor Assessor.

Factual Background

[2]Birmingham City Council (“Birmingham”) have a large retained public housing stock. It is acknowledged that they have a poor record on disrepair. We were told during the hearing that there is a national system of grading local authorities as to their record as public landlords. The rating system goes from zero to four stars. Until recently, Birmingham were consistently awarded zero stars. Recently they have improved to the extent of acquiring a single star.[3]McGraths have many clients such as the current claimants, who are Birmingham tenants. They are agreed to be of modest means. Because of the poor record of Birmingham City Council, it is normal to have to resort to litigation so as to attempt to relieve continuing disrepair. In terms of compensation the cases are always modest and often very small. Following the advent of the Civil Procedure Rules, allocation of these cases is almost always to the Fast Track or the Small Claims list, with the great majority being small claims. In the course of the hearing, Birmingham acknowledged that it was the deliberate policy of their legal department to press cases away from allocation as Fast Track cases. We were told:
“this is litigation”
. The problem of case allocation of such cases in the civil courts can often be compounded by the effect of parallel proceedings taken in the Magistrates Court, pursuant to Section 82 of the Environmental Protection Act 1990, which section permits a tenant to bring proceedings against the landlord for allowing a tenant to live in conditions prejudicial to their health. Repairs carried out pursuant to an order in criminal proceedings can often have the effect of ensuring the civil claim will become a Small Claim, even where otherwise it would have been allocated to the Fast Track, and such an effect may come about quite some time after civil proceedings have been issued. It is of course almost always the case that no costs will be awarded in a Small Claim, even where, up until the point of allocation, the case had a realistic prospect of allocation to the Fast Track.[4]Mr Friston for the Council acknowledged to us in the course of the hearing that his clients almost always lose housing disrepair claims taken against them. It follows that they usually find themselves liable for the costs of the proceedings, where costs orders can be made. There can be no doubt this is the basis of their policy of managing this class of litigation so that cases are allocated as Small Claims.[5]All of this falls to be set against the well known background of greatly reduced public funding for civil litigation. In the great majority of these test cases, there was no realistic prospect of public funding. They cannot be treated as a statistically reliable cohort to test the availability of public funding, but it is not suggested that more than a small minority of claimants within this category of case would achieve a public funding certificate. All of this constitutes an acute funding problem for claimants in housing disrepair civil cases and those who wish to represent them. It also represents a markedly different factual background to that which has obtained in relation to the great majority of cases concerning Conditional Fee Agreements.[6]McGraths attempt at a solution to this funding problem was to design a standard CFA, with supporting standard correspondence for clients, designed to fill the gap. The point at issue in this Appeal is the enforceability of that CFA, particularly in the light of the advice given to McGraths’ clients, as each entered into this agreement. It is worth recording from the outset that counsel for Birmingham City Council has explicitly acknowledged that McGraths’ intentions were benign and that their objectives were to enfranchise this category of claimant, permitting them access to the courts which they would otherwise often be unlikely to achieve. Mr Friston described the scheme as “laudable in many ways”. This is not a case of lawyers’ profiteering.

The Agreement

[7]The content and effect of the standard agreement was summarised elegantly by Master Campbell in his judgment as follows: “21. The following section of McGraths’ standard form CFA applied in each of the ten cases before the court where “You” is the client:- “…[If] You are successful in recovering money from your opponent, but it is not possible to agree that your opponent will pay your legal costs and expenses, or alternatively, the court does not make an order that your opponent pays your legal costs and expenses, you will be liable to pay either the amount we would normally charge you under Clause 5 above [i.e., on an hourly rate basis] or the amount calculated in accordance with the formula below whichever is the lower figure [original emphasis]: If the amount of compensation recovered is £3,000 or less, we will limit our charges to £1,000 plus VAT, plus the full amount of any expenses incurred. If the amount of compensation recovered is more than £3,000 then we will limit our charges to no more than one third of the total compensation recovered (to which VAT will be added). Therefore this formula operates as a cap upon our charges in these circumstances. Again the full amount of any expenses incurred will also be payable.”22. Accordingly, in a small claim where the client recovered damages but without a costs order:- i) If the compensation was £3,000 or less McGraths, would charge either their usual costs calculated on an hourly rate or £1,000 plus VAT whichever was lower. ii) If the compensation was more than £3,000, the normal fees would be payable save that the solicitor’s charges could not be more than one third of the damages.23. It follows that under these arrangements, clients who did not recover their costs would receive a discount (emphasis added) in respect of their own costs which would be capped either at £1,000 plus VAT, or if the compensation exceeded £3,000, or more, at one third of the damages, plus expenses in each case.” “…[If] You are successful in recovering money from your opponent, but it is not possible to agree that your opponent will pay your legal costs and expenses, or alternatively, the court does not make an order that your opponent pays your legal costs and expenses, you will be liable to pay either the amount we would normally charge you under Clause 5 above [i.e., on an hourly rate basis] or the amount calculated in accordance with the formula below whichever is the lower figure [original emphasis]: If the amount of compensation recovered is £3,000 or less, we will limit our charges to £1,000 plus VAT, plus the full amount of any expenses incurred. If the amount of compensation recovered is more than £3,000 then we will limit our charges to no more than one third of the total compensation recovered (to which VAT will be added). Therefore this formula operates as a cap upon our charges in these circumstances. Again the full amount of any expenses incurred will also be payable.” i) If the compensation was £3,000 or less McGraths, would charge either their usual costs calculated on an hourly rate or £1,000 plus VAT whichever was lower. ii) If the compensation was more than £3,000, the normal fees would be payable save that the solicitor’s charges could not be more than one third of the damages.[8]In my judgment, the Master’s summary gives a clear and accurate rendering of the effect of this agreement. It should be noted that the agreement itself is an extensive document 14 pages in length, which was accompanied by a further 14 page document spelling out to a client the “Terms and Conditions of Business of McGrath”. Further, before a client signed a CFA, an extensive explanatory letter would be sent to them setting out clearly and in detail the choices open to the claimant in relation to the litigation and giving advice about how the litigation might be funded, including an introduction to the CFA which it was proposed the client should enter. This was known as the “L47E”. For our purposes, the most relevant passage from this extensive letter is the text which deals with the funding of the case. It reads as follows:
“Funding to Take the Case to Court For us to be able to take the case to Court under Public Funding, it would be necessary for you to apply for what is called a “Public Funding Certificate” (this used to be called a Legal Aid Certificate). You will be granted a Public Funding Certificate only, if the Legal Services Commission take the view, both that you have a good prospect of success and that you are likely to recover your legal costs from your opponent. In cases where both of these things are certain, best advice to you would be to apply for a Public Funding Certificate. You will normally be the beneficiary of a Costs Order against your opponent, either when the amount of compensation recovered exceeds £5,000.00, or the amount of compensation exceeds £1,000.00, but there is continuing disrepair at the property, which is the landlord’s responsibility and which the Court orders the landlord to carry out or, the amount of compensation is less than £1,000.00 but the value of work ordered to be carried out by the Court is more than £1,000.00. In view of the advice that we give you below about the value of your claim and the existence, if any, of disrepair, our view is that it is likely that the Court will make a Costs Order against your opponent but it is not guaranteed and if the Court fails to make such an Order, it has serious costs implications for you. At the present time the help we have given you under the “Legal Help” scheme is completely free to you, and even if you recover money from your opponent you will not have to pay for any of that work. If however, you are granted a Public Funding Certificate and do not succeed in obtaining your costs from your opponent, all of the work that we have done under the Legal Help Scheme will have to be paid for out of any compensation that we recover, together with all the costs that are incurred under the Public Funding Certificate. We estimate that the total costs that will be incurred under the Legal Hep scheme is going to be approximately £500.00 plus VAT and that will have a substantial impact on the amount of compensation that is recovered for you. In these circumstances our best advice at the moment is that you should not at this stage apply for a Public Funding Certificate. If at any stage in the future it becomes certain that there will be a costs recovery, provided you are successful, then our advice will change and our advice will be that you should apply for a Public Funding Certificate at that stage.”

The Contentious Business Agreement

[9]When it became apparent to McGraths that Birmingham were intent on mounting a challenge to the enforceability of the standard CFA they had devised, McGraths took the step of creating and entering Contentious Business Agreements [“CBAs”] with their housing clients who were signatories to the CFA. These agreements were made by way of deed. The central provisions are as follows:- “IT IS AGREED AND DECLARED THAT:- 1. The client is liable under the terms of the dated 9th August 2004 (“the Conditional Fee Agreement”) for the Solicitors’ charges and expenses in the Proceedings and, subject to what follows below, shall remain so liable just as before after the signing of this agreement. 2. This Contentious Business Agreement (made under Section 59 of the Solicitors Act 1974), made by Deed, creates an additional basis of liability for the client to pay the Solicitors’ charges and expenses in relation to work in the Proceedings already done and also work which will be done in the future. The client is therefore liable for the Solicitors’ charges and expenses under both agreements, the Conditional Fee Agreement and the Contentious Business Agreement. 3. Save as provided specifically by this agreement, the client will not be asked to pay the Solicitors’ charges and/or expenses in the Proceedings under either agreement until the end of the cost assessment proceedings or until the end of the retainer between the Solicitors and the client, whichever is the sooner. At that time, the Solicitors shall have the right to choose which agreement (the Conditional Fee Agreement or the Contentious Business Agreement) they wish to enforce against the client. Therefore, although the client remains liable under both agreements, he/she will only ever have to pay the Solicitors’ charges and expenses once. 4. The client agrees to become liable for the Solicitors’ charges and expenses in the Proceedings under this Deed, in consideration for which the Solicitors agree to waive their right (which right is contained in the Conditional Fee Agreement) to retain compensation monies held in the name of the client in their client account until the assessment of costs in relation to the said proceedings has been finalised. 5. The Solicitors further agree to pay to the client, forthwith upon the signing of this Deed, the balance of compensation monies due after deducting the sum of £[X] in relation to expenses incurred by the Solicitors namely a balance of £[Y]. 6. In consideration for the Solicitors waiving their right to retain compensation money under the terms of the Conditional Fee Agreement and to pay the amount of compensation forthwith only deducting expenses incurred, the client agrees:(a) To pay all expenses which have been incurred by the Solicitors, and by any previous Solicitors who have acted, and which will be incurred by the Solicitors in the future, in connection with these proceedings (“expenses” means the same as they do in the Conditional Fee Agreement).(b) Further, to pay the charges of the Solicitors and any previous Solicitors for all work done, or to be done, in connection with the said proceedings. 7. The client remains responsible to pay the Solicitors’ charges and expenses under this Contentious Business Agreement, whether or not any of these are recovered from the Landlord. 8. The client is liable for the charges and expenses in accordance with this Deed, even if a Court rules that the Conditional Fee Agreement is not valid or enforceable against the client.” (a) To pay all expenses which have been incurred by the Solicitors, and by any previous Solicitors who have acted, and which will be incurred by the Solicitors in the future, in connection with these proceedings (“expenses” means the same as they do in the Conditional Fee Agreement). (b) Further, to pay the charges of the Solicitors and any previous Solicitors for all work done, or to be done, in connection with the said proceedings. 8. The client is liable for the charges and expenses in accordance with this Deed, even if a Court rules that the Conditional Fee Agreement is not valid or enforceable against the client.”

The Case for Birmingham before Master Campbell

[10]Master Campbell summarised the case as advanced by Birmingham before him succinctly:- “24. Dr Friston advanced the Council’s case on two grounds. Firstly, he submitted that the Claimants could have taken advantage of public funding, and that their collective failure to do so was evidence of a breach of Regulations 4(2) (d) and (e) of the Regulations (“the Compliance Argument”). Secondly, he contended that the construction of the CFA breached Sections 58(2)(b), 58(3)(c), Section 58(4)(a)(b) and (c) CLSA, [Courts and Legal Services Act 1990, as amended] in that the conditional loss of the discount (emphasis added) was a success fee and McGraths had failed to comply with the statute and with Regulations 3(1), 3(2) or 3(3) of the Regulations (“the Construction Argument”).” In addition, Birmingham argued before the Master that the CBA was incapable of creating a retainer which could be enforced against a paying party. They argued before the Master that whilst a deed of rectification might be effective to circumvent the consumer protection to which the Claimants were entitled under the relevant regulations, a deed of variation which is the CBA could not achieve that result. In addition, Mr Friston for Birmingham relied before the Master on the decision of the Privy Council on Kellar –v- Carib West (Privy Council No.13 of 2003), 24 June 2004. Essentially Birmingham relied upon this authority as demonstrating that such a contentious business agreement, if it could ever be retrospective, certainly could not retrospectively alter the liabilities as between solicitors and own client, once the client had become entitled to costs from the other party to the litigation: that would be to permit a retrospective arrangement between solicitor and client effectively to create an obligation on the part of these defendants, where otherwise there would be none. Master Campbell’s Reasoning and Decisions[11]The Master concluded that the L47E letter did discharge McGraths’ obligations under the regulations. He stated that:- “Looked at in the round, I consider the letter to be measured, balanced and effective to discharge the solicitors’ obligations under Regulation 4.” Judgment Paragraph 41

Judgment Paragraph 41

[12]The essence of the Master’s reasoning on that point was that the client was fully informed as to alternative methods of funding and adequately informed as to the choice the client needed to make, in particular between signing the CFA and seeking public funding. The Master’s reasons are fully set out on this point between paragraphs 40 and 52 of his judgment and I do not intend to set them out further here.[13]On the construction point, Master Campbell rejected Birmingham’s submission that this agreement provided for a success fee, concluding that what was offered to the client was a discount from the normal fee. The CFA therefore complied with the law, since there can be no failure to stipulate the percentage success fee if no success fee is involved. As a fall back position, Master Campbell found that if he was wrong as to his construction there was no material adverse affect either on the administration of justice or on the protection afforded to the Claimants, given the nature of this agreement. Again, the Master’s decision is clearly set out in paragraphs 67 to 70 of his judgment.[14]As to the Contentious Business Agreement, the Master concluded that:- “……what the CBA does is to regulate the position as between McGraths and its clients, in so far as there may have been any inadvertent or immaterial breaches of the CFA regulations. I do not consider using a CBA in this way is a device to circumvent those regulations. On the contrary, as Mr Mallalieu has pointed out, the Solicitors Act permits an agreement to be made in respect of work “done” (viz already completed) under Section 59(1) of the 1974 Act. It follows that I reject the Council’s contention that the Deed Argument also absolves it from liability for the claimants’ costs in these cases.” Judgment, paragraph 78.

Birmingham’s Arguments on Appeal

[15]In order to succeed on appeal, Birmingham must show that the Master’s decision was “wrong” - CPR 52.11(3) (a). In seeking to do that, Mr Friston takes a number of points, which in my judgment come down to the following propositions: firstly, each claimant ought to have been told, or told more clearly, of the costs protection they would obtain if they achieved public funding and in that regard, the Master failed to direct himself that there was a material breach of the obligation under Regulation 4(2)(d) as to adequate advice concerning other methods of funding; secondly, that the advice, agreed to be erroneous, to the effect that costs incurred under Legal Help would attach to the statutory charge, was not merely a breach of the regulations but was a material breach within the meaning of Hollins –v- Russell [2003] EWCA Civ 718; thirdly, that the Master made an error of law in that he rejected the contention that the deed was unenforceable and should be disregarded. I will deal with each of those arguments, in addition to addressing the construction argument advanced below by Mr Friston but not repeated in his skeleton argument or oral arguments to us.

Construction of the Agreement

[16]The platform for enforceability of a CFA is compliance with the Courts and Legal Services Act 1990, as amended, and the Conditional Fee Agreements Regulations 2000. I emphasise that the finding of the Master on enforceability was not appealed. The defendant did not pursue the submission that the conditional loss of discount was a success fee, rendering the agreement non-compliant with statute and regulations. In my judgment, they were right not to do so. I have addressed the arguments advanced below only because the construction of the agreement and its enforceability are essential starting points for the questions which were argued in the appeal.[17]By Section 27 of the Access to Justice Act 1999, the 1990 Act was amended to substitute for Section 58 a new section the relevant part of which reads as follows: “58(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 (subject to sub section (5)) any other conditional fee agreement shall be unenforceable. (2) For the purposes of this section and Section 58(a) (A) – (a) a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and(b) a conditional fee agreement 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. (3) the following conditions are applicable to every conditional fee agreement ………..(c) it must comply with such requirements (if any) as may be prescribed by the Lord Chancellor. ……….” (a) a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and (b) a conditional fee agreement 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. (c) it must comply with such requirements (if any) as may be prescribed by the Lord Chancellor.[18]There is no question but that the CFA in question is a Conditional Fee Agreement satisfying the definition in the amended section 58(2) (a) set out above. As I have indicated above, the position taken by Birmingham was that the Agreement provides for a success fee within the definition of Section 58(2) (b). The distinction is important, since an agreement with a success fee carries increased obligations as to its form and content under the relevant regulations. The Master rejected the contention that this Agreement carried a success fee.[19]The submission made by Birmingham started from the proposition that the reduced fees and expenses payable by the client to McGraths, in the event that no costs were awarded against the Defendant, represented the “fees and expenses” of the “person providing advocacy or litigation services” within the meaning of Section 58(2) (a) which fall to be “…increased, in specified circumstances, above the amount which would be payable….” if the specified circumstances arise.[20]Master Campbell was correct to reject this submission . In my judgment, the “fees and expenses” referred to in Section 58(2) (a) are the normal fees and expenses which would be chargeable in the absence of any Conditional Fee Agreement. That this should be so, is all the more evident in the kind of case with which we are concerned, where Fast Track cases are the subject of an agreed standardised costs regime. In my view, that is a straight forward and sensible reading.[21]However, the matter goes further. The basis of Birmingham’s submission was that for this group of clients, the market rate is the reduced level of fees for which they are liable in any event under the agreement. The margin between that reduced level of fees and the “normal” level of fees is a liability to which these litigants would not be prepared to expose themselves. By that route, it was said, the reduced “fees and expenses” are the “fees and expenses” within Section 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 represents the success fee. The problem with this analysis is that it would apply to almost every Conditional Fee Agreement entered. It could almost always be said that the client has only entered the agreement because of their reduced exposure. Hence, it could be argued in every case, that the reduced level of fees – which will often be nil – represents what the market will bear and therefore the increment represents the success fee. This argument would obliterate the distinction normal in conditional fee agreements between the “base fee” and the “success fee”. This cannot have been the intention of Parliament, since the section clearly has in contemplation two separate categories of CFA: those with and those without success fees. If Mr Friston’s contentions below had been correct, it would be difficult to think of a CFA that would not carry a success fee. Section 58(2) (a) would be redundant.[22]What was on offer to the claimants in this group was a discount from the normal “fees and expenses”. There is no success fee under these arrangements and the obligations derived from the existence of a success fee do not attach to this CFA.

Solicitors’ Obligations as to Information

[23]The obligations upon a solicitor to provide information to a client before entering the CFA are set down in Regulation 4 of the Conditional Fee Agreements Regulations 2000, which reads as follows: “4.(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 explanation, advice or other information about any of those 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 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 or all of those costs 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.” (a) inform the client about the following matters, and (b) if the client requires any further explanation, advice or other information about any of those matters, provide such further explanation, advice or other information about them as the client may reasonably require. (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 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 or all of those costs 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.[24]The complaints made by Birmingham both relate to Regulation 4(2). As I have indicated above there are two points. I shall deal firstly with the fact that, as the Agreed Note of Counsel of August 2006 set out, the L47E letter was in error in advising clients that fees incurred under the Legal Help Scheme would be recouped from damages by means of a legal aid charge if the client’s case proceeded with public funding, and the resultant contention that the letter was consequently in material breach of the Regulation. Secondly, I will deal with the attack on the L47E letter as providing inadequate advice on the existence and importance of the costs protection conferred by the grant of a public funding certificate.[25]Helpful guidance has been given to Costs Judges on the proper approach to assessing compliance with these regulations by the Court of Appeal in Hollins –v- Russell [2003] 1 WLR 2487. The Court considered six test cases where there was a challenge to compliance with regulation in CFAs. The most important passage from the point of view of this case comes from the Judgment of the Court at paragraph 107, which reads as follows:
“The key question, therefore, is whether the conditions applicable to the CFA by virtue of section 58 of the 1990 Act have been sufficiently complied with in the light of their purposes. Costs judges should accordingly 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 reasons to conclude otherwise) the conditions have been satisfied.” “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?”[26]The decision of Master Campbell in respect of both complaints directed at the letter was that the letter complied with the regulations. This reasoning is set out at paragraphs 40 – 52 inclusive. His key conclusions in respect of both of these points were that: “Looked at in the round, I consider the letter to be measured, balanced and effective to discharge the solicitors obligations under regulation 4 (Judgment paragraph 41)” and “Applying the materiality test in Hollins –v- Russell, I am not persuaded, either, that if I am wrong in my conclusions about compliance, it would follow that any breaches would have had a materially adverse effect on the protection afforded to the client or on the administration of justice.”

and

[27]The error as to costs incurred under Legal Help was real. As both counsel in the case phrased it in their joint note of 1 August 2006:
“It is also agreed, however, that the Regulations lack limpidity, and the aforesaid error was understandable and cannot be regarded as being in any way culpable.”
[28]Can an error which is understandable in human terms, and is derived from particularly obscure and poorly drafted regulations, constitute reasonable advice by a lawyer to a client? In my judgment, it cannot. However understandable it may be for a solicitor to be baffled or misled by such a regulation, I cannot concede that it can ever be “reasonable” to give wrong advice on the law.[29]Moreover, even taking the guidance of the Court of Appeal in Hollins –v- Russell at its highest, erroneous advice as to the law cannot in my judgment be neutralised or abolished on the basis that a letter of advice to clients is otherwise careful, full and reasonable. Thus, with great respect to the approach Master Campbell has taken, I differ from his judgment to that extent.[30]The question then arises in respect of this complaint as to whether the failure was “material”. Here, the view taken by the Master seems to me correct. On this aspect of the case, I sought and received help from those sitting with me. The Assessors are of my mind. What flowed from this error? It meant that the client may have been wrongly brought to think that he would be at risk of a modest deduction from future damages, if he subsequently obtained legal aid, additional to the real risk of deduction of a larger sum relating to costs incurred after grant of a Public Funding Certificate. Given the considerable complexity of the situation faced by each of these claimants, with complex risks and opportunities to be assessed, all hedged about with uncertainty, I am of the view that Master Campbell was correct: this error had no material effect on the protection afforded to the client or on the proper administration of justice.[31]I turn to the question of the alleged failure to give the client adequate information about the costs protection available, if publicly funded. Here, I fully agree with the approach taken by Master Campbell, in line with the guidance of the Court of Appeal: the letter of advice must be looked at in the round. One of the main themes throughout the letter is the risk of being liable for costs. That risk is explained in many passages and the question of insurance against costs liability fully discussed. There is no complaint from Birmingham in relation to the advice given concerning insurance against costs. Yet the risk of an adverse Costs Order is the whole point of considering such insurance. Any reasonable client reading this letter would have been fully alive to that risk.[32]The letter nowhere says in a straightforward separate passage:
“If and when you have a Public Funding Certificate, you are probably no longer at risk of further adverse costs.”
It might have been better if the letter did say that. However, as the Master did say in paragraph 44 of his judgment, the letter did tell the client that a Public Funding Certificate would give “some protection against a Costs Order”. It should be stressed that a grant of public funding does not confer complete protection against an adverse costs order. Section 11(1) of the Administration of Justice Act 1999 would apply so that such adverse costs order should not “…exceed that amount (if any) which is a reasonable one for him to pay having regard to all the circumstances….” The Community Legal Services (Costs) Regulations 2000 prescribe the procedures by which a reasonable amount may be arrived at. It is not unusual for a publicly funded party to be pursued for costs and to be ordered to pay at least some of those costs to an opponent.[33]This advice must be seen in context. Public funding is extremely unlikely to have been available to any claimant until the case was allocated to the Fast Track. Save in very exceptional circumstances, as I understand it and on the evidence before Master Campbell, 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. Against that background, Mr Friston’s arguments on this point boiled down to the following propositions. Firstly, there would be a time lag between an application made at or just after allocation and the actual grant of a certificate, during which costs might be accumulating at a considerable pace. No protection would be afforded against an adverse order in respect of such costs by a subsequent grant of a Public Funding Certificate. Secondly, Mr Friston argued (correctly as to the facts) that costs accumulated on a file before allocation might become a liability for a claimant, and had public funding been granted before allocation, that liability would have been avoided.[34]The difficulty with those arguments is that they relate to risks which can hardly be avoided at all in practical terms. If in practical terms it is not possible to achieve a Public Funding Certificate before allocation, then advice that it should be sought before that point may be theoretically correct but is liable to divert and delay the conduct of the claimant’s case. It is also potentially confusing and even misleading for the client. In any event, the letter did make two key points: firstly, that Public Funding Certificate provides a measure of protection against adverse costs and secondly, that once the case has been allocated to the Fast Track, the claimant should seek public funding. In my view the Master was right to conclude that on this matter the letter complied with Regulation 4. It would probably have been better had the letter said something like:
“a Public Funding Certificate provides effective protection, if not complete protection, against an adverse Costs Order once it has been granted. However, in practical terms you will not be granted a Public Funding Certificate and thus not achieve costs protection unless and until your case has been allocated to the Fast Track. That is one of the reasons why we recommend you make such an application if that situation arises.”
However, since that was the thrust of the advice being given anyway I agree that the letter was sufficiently accurate on this issue as to comply with Regulation 4.[35]I should record that, had I taken a contrary view and concluded that the letter gave inadequate advice as to the risk of adverse Costs Orders and what might be done to avoid that risk, then unless the advice was only minimally deficient, I would have regarded it as a material departure for the purposes of the Hollins –v- Russell materiality test. The impact of an adverse Costs Order might in a few cases be considerable.

The Contentious Business Agreement

[36]In the course of the hearing, I was asked by counsel to consider giving guidance as to the efficacy of a Contentious Business Agreement which seeks to put right any defect in a CFA which had been entered into. I would in any event have declined the invitation to give anything approaching general guidance on such a point. I record here only that I would be hesitant to conclude that any CBA entered into by a Claimant, after an adverse Costs Order had been made against the defendant and in favour of the Claimant who was a signatory to the relevant, potentially defective, CFA, could be held to alter retrospectively the rights and obligations as between claimant and solicitor. The reason is obvious. To uphold a retrospective rearrangement in circumstances like that, would be to uphold the retrospective revision of – or even creation of – the defendant’s costs liability. On first principles, if at the time of the adverse Costs Order there is a defect in CFA which renders it unenforceable in whole or in part, meaning that the relevant defendant has either no liability or reduced liability under the adverse Costs Order, it would seem extremely unlikely that it can be lawful to abolish the defect retrospectively by a deed created between the claimant and his solicitor.[37]In any event, in this case the CBA is only expressed to be relevant or enforceable if the CFA is unenforceable. In my judgment Master Campbell was correct to find the CFA enforceable, and thus the CBA need not be relied on to uphold the Defendant’s liability for costs. Given that these defendants argue that the CBA is unenforceable in any event, I do not see how such an allegedly unenforceable after-coming agreement could be held to vitiate an otherwise enforceable CFA.

Conclusions

[38]I agree with the Master’s reasoning and conclusions as to the construction of the CFA. I disagree with his conclusion that a letter containing the acknowledged error on the impact of costs under Legal Help can be regarded as compliant with the Regulation, but in my judgment the Master was correct to conclude that any such breach was not material. I agree that the advice given in relation to the costs protection afforded by a Public Funding Certificate was reasonable in all the circumstances and constituted compliance with the Regulations. The Contentious Business Agreement was only ever intended to operate if the CFA was unenforceable, and since the CFA is enforceable, the validity of the CBA is an academic question. For these reasons the decision of Master Campbell is re-affirmed, although on slightly varying grounds. The appeal is dismissed.

Cited in 4 later judgments