The facts of the case were that the claimant had funded litigation against the defendant by way of a CFA. The claimant had also entered into a loan agreement and an insurance policy and was represented solicitors who were on the insurers’ panel. At the outset of the matter the claimant’s solicitors sent to the claimant a client care letter asking the claimant to sign the CFA and recommending insurance with the insurer. The client care letter included an assurance by the claimant’s solicitors that, provided the claimant cooperated with her solicitors and did not withdraw her instructions, the solicitors would recover their costs from the defendant and the client would not have a bill to pay. This was also set out in the CFA in which it was stated that where the case was won the Claimant’s solicitor would waive any portion of costs not recovered from the Defendant. However the CFA also provided that where the case was lost the Claimant was liable to pay her solicitors disbursements. In those circumstances the claimant had taken out the policy of insurance which would pay the disbursements and so they would be “recovered” from the insurers.
The terms of the CFA stated that the insurer's litigation insurance cover was "only made available to you by solicitors who have joined the scheme" but the final term of the CFA itself stated that the claimant’s solicitors "did not have an interest in recommending this particular insurance agreement".
At first instance before District Judge Fairclough the Defendant argued that the CFA was unenforceable for breach of the CFA Regulations 2000 and that it did not fall within the exception created by Regulation 3A. However the District Judge found that, in light of the client care letter and the recoverability of disbursements under the insurance policy, the CFA fell within Regulation 3A of the 2000 Regulations and therefore that the CFA Regulations 2000 at 4(2)(e)(ii) had no application and the CFA was enforceable.
The matter then went to His Honour Judge Holman on appeal who found that the CFA did not come under Regulation 3A and that the CFA was unenforceable as the claimant’s solicitors had failed to inform the claimant of an “interest” pursuant to Regulation 4(2)(e)(ii) of the CFA Regulations 2000. The decision that the CFA did not come under Regulation 3A was founded upon the basis that the client care letter was not an admissible resource when construing the CFA. Moreover if the fees could be met by insurance it followed that liability for costs remained with the client, since an insurance company simply acted to indemnify a claimant against a liability.
On appeal the claimant submitted that the claimant's CFA made her liable only for fees and expenses that she would recover by way of costs "or otherwise" in accordance with the meaning of those words as used in Regulation 3A(i). The claimant submitted that the words "or otherwise" included a situation where the claimant recovered under an insurance policy what she might otherwise be liable to pay to her solicitor, so that such a CFA was within Regulation 3A.
The Court of Appeal considered the issue and found that the CFA was a CFA “Lite” and that therefore under Regulation 3A the CFA was enforceable. There was no reason why as a matter of language, "or otherwise" could not include recovery under an insurance policy.
The Court also found that the correct approach to construing a CFA agreement was to look at the whole package produced by the solicitor: the CFA agreement, the client care letter explaining the effect of the agreement and the insurance policy recommended by the solicitor. The question that should be asked was whether the solicitor had produced an arrangement for a CFA under which the claimant would not be liable for any own-side costs or expenses (apart from the circumstances defined by Regulation 3A(5) of the 2000 Regulations) other than those that were actually recovered from the other side or from insurers.
The issue of whether a CFA is a CFA Lite depends upon the construction of the agreement between the solicitors and the claimant and since the agreement in the instant case was, so far as the claimant was concerned, there would be a waiver (except to the extent that there was recovery either from a losing defendant or under an insurance policy) so that unless the claimant withdrew instructions she had no liability for costs. Therefore the CFA in the instant case was a "CFA Lite” and pursuant to the Regulation 3A, compliance with Regulation 4 was not required.
The Court of Appeal went on to consider whether, had Regulation 3A not applied, there would have been a breach of Regulation 4(2)(e)(ii) of the CFA Regulations 2000. The Court of Appeal found that the case of Garret –v- Halten [2006] EWCA Civ 1017 would apply and, despite the best efforts of the claimant’s counsel could not be distinguished. In this case the claimant’s solicitors clearly had an interest that should have been disclosed and, if the CFA had not been a CFA Lite, there would have been a breach of Regulation 4(2)(e)(ii).
As indicated by Waller LJ this case was particularly important as a number of CFAs were at risk if the Court of Appeal found that Regulation 3A did not apply and that therefore Regulation 4 did apply! As claimant solicitors will be aware, although the CFA Regulations 2000 were abandoned in November 2005 there are still several pre-2005 CFAs under which costs are sought. Following this decision where there is a challenge on the basis of a breach of the CFA Regulations 2000, claimant solicitors should check the entirety of their CFA documentation carefully. This includes the CFA itself, the insurance policy and the client care letter. In this case Mr Morgan QC, acting for the defendant, suggested that the application of Regulation 3A had occurred by chance and not by design and that may be the case with other claimant solicitors! Where there is a waiver of fees not recovered or where there has been a written assurance that the claimant will not have to pay any costs not recovered from the defendant or the insurer, (as long as the claimant does not withdraw instructions) any such challenges may be rebuttable depending on the construction of the CFA.
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