Legal Updates

Commercial Law – Conditional Fee Arrangement - CFA – Recovery of Costs

In the recent Court of Appeal case of Myatt and others v National Coal Board [2007], four claimants brought noise induced hearing loss claims against the NCB. The ruling means that those acting for defendants may be able to recover costs from a solicitor who has an obvious financial interest in the outcome of proceedings

In this case, which involved Conditional Fee Agreements (“CFA”), all matters were non-litigated in the main action and all claims were settled for less than £5000. A CFA is a type of arrangement whereby payment to the solicitor is dependent upon the result of the proceedings, and is permitted (only in certain circumstances) by s.58 of the Courts and Legal Services Act 1990 and the Conditional Fee Agreements Order 1998.

Under a CFA, a solicitor can charge his client the usual charge out rate, plus an uplift (also known as a ‘success fee’), if he has pursued the clients' case successfully. However, in this case, the CFA was found to be unenforceable due to the fact that the enquiries about alternative methods of funding and ‘before the event’ insurance were inadequate. According to the judgment in this case, the CFA did not comply with Regulation 4(2)(c) because:

"The client was asked the wrong questions ... the client being asked to interpret what could well have been a complex document. Being unsophisticated clients, it would, in my judgment, have been an inadequate inquiry and would not have been compliant with Regulation 4(2)(c)."

The court held that the solicitors should have asked whether the clients, or anyone living in their household, had credit cards, motor or household insurance or were members of any trade union. It also said that the solicitors did not need to actually go and visit the client to view the insurance documents, but the solicitors should have at least requested to see them.

In addition, it did not seem as though the solicitors had asked about any relevant documents belonging to other members of the client's household. This should have been carried out. The court also added that the ‘after the event’ insurance premiums were high when considering the size of each claim.

The court finally held that it had jurisdiction to make a costs order against a party's solicitors. This was where the substantive litigation had been pursued by the client for the benefit, or to a substantial degree for the benefit, of the solicitor. Commentators have said that this principle may be limited to cases where proceedings are funded by CFAs as well as where issues arise as to the enforceability of an agreement in question. Where a party applies for a costs order against a solicitor, they must warn the solicitor so as to provide them with a reasonable opportunity to decide whether to carry on with the proceedings.

The ruling of the court meant that the claimants' solicitors were ordered to pay 50% of the defendant's costs of the appeal. The percentage was adopted because the claimants had also had a real financial interest in the success of the appeal, mainly because they were liable for disbursements, and the solicitors had not been warned until the appeals had been dismissed that an application for a costs order might be made against them. The ruling is an interesting and necessary re-appraisal of the court's jurisdiction to order solicitors acting for a party to pay the other side's costs.

Prior to this decision, the courts have resisted applications for costs against solicitors who had acted pro bono in a hopeless case (Tolstoy-Miloslvsky v Aldington) or where the solicitor was aware that his client could not possibly afford to pay his costs whatever the formal agreement between them, such as a CFA without insurance, but continued to act for him (Times Newspapers Ltd v Burstein). Solicitors acting for defendants will be relieved that they may be able to recover costs from a solicitor who both funds, and has an obvious financial interest in, the outcome of proceedings and to a substantial extent has control of them. It will be interesting to see whether such orders will be confined to proceedings concerning the validity of the costs retainer.

Please contact us for more information on assessing damages due under termination of a contract at enquiries@rtcoopers.com

Visit http://www.rtcoopers.com/practice_corporatecommercial.php

© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

 

 

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