DAVID UTTING v PHILIP McBAIN [2007] EWHC 3293 (QB)

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
[2007] EWHC 3293 (QB)Case No Case No: QB2007PTA/0589Venue Royal Courts of Justice, Strand. London. WC2A 2LL
Between
DAVID UTTINGAppellant/ ClaimantPHILIP McBAINRespondent/ Defendant
Before
MR. JUSTICE BLAKEMR. MARK JAMES (instructed by Jeffrey Green Russell) for the Appellant/Claimant MRS. VICTORIA BUTLER-COLE (instructed by Brodie and Company) for theRespondent/DefendantDate 28 November 2007
[1]MR. JUSTICE BLAKE: This is an appeal of a decision of Master Campbell dated 17th August 2007 when he dismissed an appeal by the claimant from a decision of Costs Officer Lambert disallowing all solicitors' costs claimed in parts 2, 3 and 4 of the bill of costs presented pursuant to a consent order made in the underlying action.[2]The case is yet another one where the claimant's solicitors conducted litigation in respect of a personal injuries claim under the terms of a conditional feel agreement, but it has been found below that there was a failure to comply with regulation 3.1(b) of the Conditional Fee Agreement Regulations 2000 that had rendered the profit costs claimed unenforceable. This is a problem that has engaged masters and others at various levels of the judicial hierarchy since 2001 and I have been greatly assisted in reaching the conclusions in this appeal by the contributions of the two assessors Master Roger and Mr. van Tonder.[3]The claimant was at the material time a minor when he was injured in a road accident where responsibility was eventually accepted by the defendants and damages agreed. He litigated through his litigation friend, his mother, who had had previous dealings with the solicitors who agreed to act in his case. On 15th August 2001 a conditional fee agreement was entered into signed by both parties and the text of the agreement was in nearly every material part a reflection of the standard Law Society agreement promulgated at that time.[4]The problem that first begun to arise in 2001 and has engaged courts ever since until the new regime that has come into place, concerns the information given in the conditional fee agreement about the success fee and its constituent parts. It is necessary to refer to the particular CFA in this case to set out the problem that has given rise to this appeal. In a number of places in the document the success fee is defined as 100% and it is said to comprise costs incurred in deferring the payment of the fee until the end of the litigation which it is recognized were not recoverable from the defendants. Thus, the second page of the agreement under "The reasons for calculating success fee at this level are set out in Schedule 1 to this agreement". The agreement states:
"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 at paragraphs (a) and (b) at Schedule 1). This part of the success fee remains payable by you." "
You", of course, being the lay client, the litigation friend or the minor whose case was being pursued.[5]Turning then to schedule 1 to the CFA one sees the percentage of 100% reflects the following:
"(a) the fact that if you win we will not be paid our basic charges until the end of the claim."
[6]Further under section 4 of the schedule under the title What Happens if You Win, the fourth bullet point indicates:
"You will not be entitled to recover from your opponent the part of the success fee that relates to the cost to us of postponing receipt of our charges and our disbursements. This remains payable by you."
[7]In my judgment the reader of this document would be in no doubt that the success fee payable by a client included an element that would not be recovered from the defendants, namely the cost to the solicitors of deferring their charges in the case. However, the document did not specify what proportion of the total success fee this element represented. This is not a case of ambiguity inside the document or a question of a choice between two inconsistent provisions as to whether the success fee did or did not include the deferral element. All the indications in the document are that it did.[8]It is against that background that the question of the enforceability of this agreement falls to be considered under the primary statute and, more particularly, the regulations made under the statute and regulation 3(1) of the 2000 Regulations in particular. I will read regulation 3.1 as a whole:
" (1) 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."
[9]Mr. James, who appears for the claimant in pursuing this appeal, submits on the first of the two main points of his appeal that there is only a breach of the regulation if in fact a percentage of the success fee was indeed attributable to deferment of costs. He submits the duty of spelling out what percentage arises if and only if such a fee was included in the case. He relies upon the words "if any" as indicating that meaning.[10]It is perfectly true that regulation 3(l)(b) does not first say that the agreement must spell out whether a success fee includes part of deferment of costs and in addition what proportion the deferment of costs represents in the success fee. It may be that if there was an agreement that was completely silent on the question of whether the success fee included an element of deferral of costs there may be no express statutory duty to identify a proportion of the deferral of costs represented towards the success fee. Of course it would be zero.[11]However, (b) must be read in the light of (a) which requires the CFA to specify the reasons for setting a percentage increase at the level stated in the agreement. Here the CFA in pursuit of that obligation specifically mentions deferral of costs as an element and that those costs will not be recovered from the defendants and will be recovered from the claimant. Accordingly the duty to specify how much follows and it follows because the agreement has already said that there is such an element in the equation.[12]In my judgment, therefore, the master and the taxing officer were correct to find that this agreement, by failing to specify what percentage increase was represented by the deferral or the postponement of costs, breached the duty in regulation 3 to spell those matters out. The second point is whether any breach has caused prejudice.[13]A substantial part of his appeal to the master and before this court was Mr. James' reliance upon a letter of the 15th August 2001, the same day as the CFA, that was sent by the relevant legal executive in the claimant's solicitors firm to the litigation friend, the mother of the child who was injured. Two passages in that letter are relied upon. Having recommended a CFA described briefly as a no win no fee agreement, the letter states:
"Under such an agreement you do not pay any costs even on conclusion of the case because the costs, together with the success fee written into agreement are all recoverable."
[14]Then the next paragraph states:
"I am enclosing such an agreement for your consideration together with notes of advice. The advantage of this agreement means that you are not liable for any costs whatever happens and on conclusion of the case, assuming of course [the child] recovers damages ~ then my firm recovers the costs that have been incurred together with the success fee from the insurance company."
[15]That letter is said to be evidence of the fact that the solicitors were not seeking any element of deferral of costs in the success fee and, therefore, there was, in substance, no prejudice or risk of injustice or no material breach of the regulation even though that factor is not spelt out in the agreement itself. It is recognized that the letter is not itself the CFA or part of it and the letter itself is not signed by both parties as it would need to be if it were to be considered a CFA. However, there are more fundamental objections than that to the reliance placed upon this letter to which I will turn in one moment.[16]The parties have provided the court with a review of the authorities dealing with the question of material or immaterial breaches of the regulations. The lead case is the case of Hollins v. Russell [2003] EWCA Civ 718 reported at [2003] 1 WLR 2487 . The courts also have the benefit of being referred to subsequent decisions of the Court of Appeal, notably Garratt v. Halton [2006] EWCA Civ 1017 reported at [2007] 1 WLR 554 and Jones v. Caradon Catnic [2005] EWCA Civ 1821 apparently unreported. For good measure the court was also referred to Spencer v. Wood [2004] EWCA Civ 352 reported at [2004] 3 Costs LR 372 , as well as certain decisions of masters trying to apply these regulations. The claimant relied on the decision of Chief Master Hurst in Brennan v Associated Asphalt (18 May 2006).[17]It is clear that not every failure to comply with the regulations renders a CFA unenforceable but broadly the test in Hollins is whether there has been substantial compliance with the regulation and whether there has been a materially adverse effect on the protection afforded by the regulations to the claimant or to the proper administration of justice. It is not necessary in this judgment to examine in detail how materiality has been developed or applied.[18]Further, it is reasonably clear that it is first usually necessary to consider the impact of the non-compliance upon the client and only then in an appropriate case go on to consider the proper administration of justice. Of course, there may be cases where the interests of justice alone drive the conclusion that the agreement is unenforceable because of the grossness of the breach and its capacity to prejudice the interest of third parties such as defendants and the insurance companies which stand behind them.[19]It is, however, common ground to be a material breach with a view to the adverse impact upon the client, it is not necessary to prove that loss has been suffered, merely that there is some capacity for prejudice. It follows from the case law, to which I have made generic reference, that it is insufficient that the debt is merely irrecoverable as a result of the breach of the regulations otherwise that would lead to a circular argument that every serious breach would not then be considered material.[20]Suffice it to say that there may be cases where despite failures to comply with the regulation the client has been properly advised as to the true nature of the CFA he or she has been invited to sign, has been informed precisely what element of the success fee is attributed to the deferral of costs and a record is made of those matters, although outside of the CFA itself and therefore still perhaps giving rise to the breach of the regulations that I have dealt with in the first issue.[21]I also accept that enforcement of CFAs is not intended to be a windfall for defendants for technical failures that had no capacity to prejudice the understanding and informed consent of the client in a particular case. However, despite those possibilities which remain unexplored further in this judgment I am satisfied that despite the terms of the letter of 15th August that this is not such a case.[22]First, it is to be noted that that letter makes no express reference to deferral of costs as an element that will not be recovered from the client as an element of the success fee, by contrast to the matters spelt out in the CFA itself.[23]The letter refers generally to costs not being payable, but as a general description of the CFA it was accepted, when the author of the letter was cross-examined in the hearing before the master, that that was not an accurate description of the state of affairs. I can do no better than to quote Master Campbell at paragraph 23 of his judgment dismissing the appeal which states:
"... it is clear from Mr. Turner's evidence given in cross-examination, that circumstances did exist in which Mr. Utting would become liable to pay costs to JGR. Such a liability would have arisen, for example, had he rejected a payment into court against JGR's advice or had he lost an interim hearing or had he ended the CFA early in which case JGR would have called him to pay their base costs. Accordingly, it is impossible to read into the letter that all costs are waived, still less that the postponement element is nil."
[24]There is considerable substance in that point having regard to the fact that the CFA does not in all circumstances render the claimant immune from costs. Therefore the letter in its generalities was not a precise and accurate description of the CFA and there would still be room for ambiguity as to whether indeed the parties had agreed that the express provision in the CFA in respect of recoverability of the elements in the success fee that could not be recovered from the defendants would be enforceable.[25]It may very well be that in truth this solicitor's firm had no intention of ever seeking to recover and may well have communicated that, particularly having regard to the fact that they were litigating on behalf of an infant. However, the letter does not of itself achieve that state of certainty as to suggest that the failure to comply with regulation 3(l)(b) which, in my judgment, this CFA fell foul of, was immaterial and was incapable of causing prejudice to the client. If the client was indeed in a genuine state of uncertainty as to what was payable by him or through his mother in the event of success or partial success or otherwise then there would be prejudice that the regulations and the scheme of the regulations as a whole was designed to prevent.[26]Accordingly, in my judgment, this case does not fall within any of the classes of exception that the courts have identified to mitigate the rigours of this rule. I reach this conclusion with some regret since the solicitors have otherwise diligently performed a service to the client and have legitimately incurred costs in so doing that will by this decision be considered irrecoverable. However, that does appear to be the policy of the regulations, the statute and the decisions giving effect to it which have arisen since the time of this CFA until more recent amendments to the regulatory scheme. Nevertheless, despite that regret I am left in no doubt that this is a case on which this appeal should be dismissed for the reasons I have endeavoured to give. MS BUTLER-COLE: My Lord, the defendant will naturally apply for its costs of appearing. I do not know whether you are minded to summarily assess those costs today. MR. JUSTICE BLAKE: I am not sure I have seen anything for summary assessment. MS BUTLER-COLE: I think there was an order that the costs order be brought along today, I am not sure why. I can certainly hand up copies. (Same handed) MR. JUSTICE BLAKE: You have seen this, have you? MR. JAMES: I have my Lord, yes. MR. JUSTICE BLAKE: Is there a dispute about this? MR. JAMES: No, my Lord, there is no dispute about the principal — MR. JUSTICE BLAKE: No, no, the principal probably I would imagine — MR. JAMES: A small dispute about the quantum. MR. JUSTICE BLAKE: Right. May I just take a moment. (Pause) Are you still working out whether you have any specific objections? MR. JAMES: My Lord, sorry, I do have specific objections yes, my learned friend and I were having a discussion about whether — MR. JUSTICE BLAKE: No, tell me what they are. (Discussion re costs follows)

Cited in 2 later judgments