When is a breach of the CFA Regulations material?
Garrett v Halton Borough Council and Myatt and Ors v National Coal Board, Court of Appeal, 18th July 2006, The decisions
1. Issue common to both appeals
In determining whether there has been a breach of the CFA Regulations which has had a materially adverse effect on the protection afforded to the client rendering the CFA unenforceable, a court will only look at the terms of the CFA and the advice and circumstances existing at the date the CFA was entered into. The court will not consider whether the breach has caused the client to suffer actual detriment.
2. The Myatt Appeal
The CFAs were unenforceable as there had been a material breach of Regulation 4 (2) (c). The claimants were ex-miners who were contemplating claims for noise induced hearing loss against the National Coal Board. The solicitors had asked their clients if they had a BTE policy which provided legal expenses cover for that particular claim rather than investigating with the client whether there were BTE policies in existence and deciding for themselves whether those policies provided suitable legal expenses cover.
The Court of Appeal gave guidance on what reasonable steps were required to ascertain what BTE cover the claimant had in order to give the advice required by Regulation 4(2)(c). (See below).
3. The Garrett Appeal
The CFA was unenforceable as there had been a material breach of Regulation 4(2)(e)(ii). In recommending the ATE policy the solicitors had failed to inform their clients that they had an interest in doing so because they were a member of the panel of Ashley Ainsworth, a claims management company and were therefore obliged to offer this particular ATE policy.
The Garrett appeal was handled by Matthew Rogers, Commercial Litigation Partner at Keoghs.
What does this mean for insurers?
The CFA Regulations were revoked on 31st October 2005 and therefore this decision is irrelevant to CFAs entered into after this date.
For CFAs entered into before that date it is still open to defendants to raise technical challenges where there is a “genuine issue as to whether there has been compliance with Regulation 4.”
Facts of the appeals
In the Myatt cases each claim settled at below £5,000. Each claimant entered into a CFA with his solicitors. Master Wright decided on detailed assessment in each case that the CFA was unenforceable due to breach of Regulation 4(2)(c) as the solicitors had failed to inform their clients whether they considered that they had relevant BTE cover. All four claimants appealed to the Court of Appeal.
In the Garrett case the claimant suffered personal injury as a result of a tripping accident. She entered in to a CFA with her solicitors with a success fee of 70%. The case was referred to her solicitors by Ashley Ainsworth.
The claim settled at £3,800 plus costs. The County Court disallowed the claimant’s solicitors costs on the grounds of a breach of Regulation 4(2)(e)(ii) as they had recommended an ATE policy but failed to inform the client that they had an interest in doing so. The County Court refused leave to appeal. The claimant’s solicitors applied for leave to appeal to the High Court on four grounds namely:
- Did the claimant’s solicitors have an interest which they were required to disclose?
- If yes, did the claimant’s solicitors disclose it?
- What was the effect of the certificate of insurance bearing a date earlier than the CFA?
- If there was a failure to disclose an interest in accordance with Regulation 4 (2) (e) (ii), did that failure have a materially adverse effect on the protection afforded to the client or on the administration of justice so as to render the CFA unenforceable?
The High Court refused leave to appeal on grounds 1, 2 and 3, but allowed leave to appeal on ground 4. The High Court dismissed that appeal. The claimant appealed to the Court of Appeal.
The decision on appeal
The issue common to both appeals was how the courts should determine whether any breach of the CFA Regulations so as to render the CFA unenforceable was material in accordance with the guidance handed down by the Court of Appeal in Hollins v Russell (2003).
The Court of Appeal decided that the courts should focus on the terms of the CFA, the advice/information given by the claimant’s solicitor and other relevant circumstances which existed at the date of the CFA in deciding whether, in the light of that material, the departure from the requirements had a materially adverse effect on the protection afforded to the client.
The courts should not consider whether the departure had caused the client to suffer detriment. The focus of the statutory scheme was on whether the CFA satisfied the conditions in the Regulations not the actual consequences of the breach.
In the light of this finding the Court of Appeal then went on to consider the facts of each case.
Myatt cases
The solicitors had asked the claimant in each case whether they had BTE insurance that would entitle them to legal expenses insurance cover in respect of the contemplated claim i.e. a claim for noise induced hearing loss against their former employer, the NCB.
The solicitors did not comply with Regulation 4(2)(c) as they asked the wrong questions. In asking those questions the claimant solicitors were asking their clients to interpret for themselves their BTE insurance policies which could have been complex documents.
Here the fact that, in reality, the clients had no relevant BTE when Regulation 4 (2) (c) was breached was irrelevant to the materiality of the breach. A breach was a breach and it did not matter that the client had in fact suffered no prejudice as a result
The Court of Appeal offered guidance as to what reasonable steps a solicitor should undertake to ascertain what BTE cover their client had in order to give advice that complied with Regulation 4 (2) (c). This would be dependent upon the facts of the case having regard to:
- The identity of the client
- The circumstances in which the solicitors were instructed
- The nature of the claim
- The amount of the ATE premium
- The circumstances of the referral to the claimant’s solicitors
The Court of Appeal gave the example of the case of Pratt v Ball (heard with the Hollins appeals) where an 80 year old claimant injured in an RTA was visited by her solicitors in hospital where the CFA was signed. The Court of Appeal commented:
“It would be ridiculous to expect a solicitor dealing with a seriously ill, 80 year old woman in hospital to delay making a CFA while her home insurance policy was found and checked.”
In this case it was reasonable that the solicitors discussed the availability of BTE insurance with the client and then formed a view before giving the advice required by Regulation 4(2)(c).
Garrett case
The Court of Appeal stated they had no jurisdiction to hear appeals in relation to the three issues on which the High Court had refused permission. However they were prepared to hear full argument on issues 1 and 2 above in order to decide whether the breach was material.
On appeal it was argued that panel membership was not an interest that required disclosure to the client pursuant to Regulation 4(2)(e)(ii). This was rejected by the Court of Appeal. The wording of the Regulations and the Law Chancellor’s Consultation paper of February 2000, which preceded the statutory regime, made it clear that membership of an insurer’s panel of solicitors was a disclosable interest.
The Court of Appeal found that there had been a material breach of that Regulation. The claimant’s solicitors had a financial interest in remaining on Ashley Ainsworth’s panel which they would have lost if the client refused to take out the ATE policy recommended which they had failed to explain adequately to their client.
The Court of Appeal noted that after 14th January 2005 solicitors were required by the Law Society, when recommending a contract of insurance to the client, to advise them that it is the only policy which they can recommend because of the firm’s membership of a panel. If this had been followed in the Garrett case the appeal would not have arisen.
Where are we now?
These decisions are irrelevant to CFAs entered into after 31st October 2005 as the Regulations have been revoked.
In respect of Regulation 4(2)(c) (the Myatt appeals) it is unlikely to be sufficient to ask a client whether they have a BTE policy which provides legal expenses insurance for the claim in question for the purposes of giving advice under this Regulation. The only circumstances where this may be enough is where a client is sufficiently sophisticated to understand the meaning of the question. The Court of Appeal took the view that few litigants would fall within this category.
Whether a claimant’s solicitor had asked adequate questions in order to give advice in relation to BTE cover that complied with Regulation 4(2)(c) would depend on the facts of each case having regard to the guidance given by the appellate court.
The Court of Appeal found that membership of an insurer’s panel is an interest that should be declared under Regulation 4(2)(e)(ii). As a result of this decision, failure to inform a client of such an interest is a material breach rendering the CFA unenforceable.
Disclaimer of Liability: Nothing in this document constitutes legal advice. You should always consult a suitably qualified lawyer about any specific legal matter. Keoghs assumes no responsibility for information in this document and disclaims all liability relating to such information.
For further information contact Matthew Rogers on 01204 677179 or by email at mrogers@keoghs.co.uk
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