[59kb]This paper is aimed at encouraging a public debate about how to make the conditional fee agreement regime simpler and work better for consumers and lawyers and those who assist both, including trade unions or insurance companies.
This paper specifically looks at whether the detailed requirements in the Conditional Fee Agreements (CFA) Regulations 2000, the Collective Conditional Fee Agreements (CCFA) Regulations 2000 and the Membership Organisation Regulations 2000 are still appropriate, given developments in case law and the legal services market. This paper also asks respondents to take a wider view and consider the experience of the last three years of the CFA regime and to put forward views on its possible future direction.
This consultation focuses on the secondary legislation governing the CFA regime. Respondents who intend to put forward proposals to change the secondary legislation should assume that the primary powers would remain as now. However, we do not want to restrict any debate around the legislation unnecessarily and comments that relate to the primary legislation whether directly or indirectly will be noted. This paper does not concern the regulation of providers of CFAs.
This paper examines the key issues and perceived problems concerning CFAs and the related regime and seeks views, comments and proposals on what if anything needs to be changed. As we are not putting forward Government proposals at this time there is no requirement for a partial regulatory impact assessment. However, the responses to this consultation will inform our plans for reform and any comments on likely regulatory impact of any proposals put forward as part of this current exercise would be welcome. We plan to publish an analysis of consultation responses and proposals for reform by the end of the year. These proposals will be subject to further consultation and to the normal consultation guidelines.
Any changes to secondary legislation should be brought forward in the first part of 2004. We intend to give the maximum possible opportunity for comment on the proposals and any legislation so it is inevitable that the implementation of any reforms to secondary legislation arising from this process will not be achieved before the middle of 2004.
The consultation is of relevance to those who use these methods of funding to initiate or defend litigation in the civil courts in England and Wales. This consultation is being conducted in line with the Code of Practice on Written Consultation issued by the Cabinet Office and the consultation will run for a period of 14 weeks from the date of this paper.
Copies of the consultation paper are being sent to:
The judiciary
The Civil Justice Council
Law Society
The General Council of the Bar
The Association of Personal Injury Lawyers
The Motor Accident Solicitors Society
Consumers' Association
Citizens Advice
Confederation of British Industry
Trades Union Congress, and others
The Federation of Information and Advice Providers
Association of British Insurers
Federation of Small Businesses
Legal Services Commission
Legal Services Ombudsman
Cabinet Office
DTI
DWP
HM Treasury
Home Office
Office of Fair Trading
Amongst others
Please send your response by 26 September 2003 to:
Afolake Tojuola
Department for Constitutional Affairs
Legal Services Development Division
6th Floor
Selborne House
54-60 Victoria Street
London SW1E 6QW
Tel: 0207 210 8792
Fax: 0207 210 0613
Email: Afolake Tojuola
Representative groups are asked to give a summary of the people and organisations they represent when they respond.
The Department may wish to publish responses to this consultation document in due course. Please ensure your response is marked clearly if you wish your response or name to be kept confidential. Confidential responses will be included in any statistical summary of numbers of comments received and views expressed.
Further copies of this consultation paper can be obtained from Afolake Tojuola at the above address or by phoning 020 7210 8792.
In April 2000 the Government made significant changes to the way in which personal injury cases are funded by introducing recoverable success fees and after the event (ATE) insurance premiums from opponents and removing from legal aid scope (apart from in clinical negligence cases). This shift was designed to increase access to justice and strike a fairer balance between claimants and defendants. Individuals who could not afford to litigate privately, despite having good cases, were given the opportunity to do so more easily. Making a personal injury claim became no longer the preserve of the wealthy or poor, but open to all with good cases. The reforms also provided defendants with a fairer system in which they could recover costs in successfully defended cases.
The reforms are now over three years old and we all need to think about what we can learn from this period, whether the regime could be better designed in the light of that experience and what further changes to secondary legislation may be needed. This consultation paper is therefore designed to promote debate in two main respects.
The first and the focus of much of the detail of the paper is to promote discussion, the formulation of views and proposals on what the regulatory regime supporting CFAs should look like. For example, what secondary legislation do we need, how prescriptive should it be, could it all be left to the professions rules, what information and protection does the client need? This process involves looking at whether the regulatory requirements governing the regime are appropriate and could be further simplified or, if necessary, reinforced in some areas. We also need to consider whether the regime is as transparent as it could be in practice and procedures.
The second is to encourage all interested parties to step back from the detail and think about how the CFA regime has developed and to consider if there are changes that need to be made beyond the secondary legislation to help make it work better. We also have the opportunity to gain from informed opinions on the impact of making success fees and ATE insurance premiums recoverable, on where are the gaps in our collective knowledge of the impacts are and where further work and is research needed?
During the preparation of the April 2000 regulations the Government was encouraged by many to put into the secondary legislation comprehensive contractual and client care safeguards. Others argued for the minimum of statutory controls and placing full responsibility for consumer safeguards in the hands of the professional rules. The Government decided on balance to be cautious and to specify detailed requirements in the regulations.
On 2 June 2003 the Government took some initial steps towards simplifying these requirements with the introduction of new regulations to provide plainly for the abrogation of the effect of the indemnity principle in specified types of CFAs. That opportunity was also taken to introduce more streamlined contract and consumer protection requirements for the new simpler agreements specified under the new legislation. The CFA 'simple' and CFA 'standard' requirements now provide a good contrast between specifying little and specifying everything.
When my predecessor Baroness Scotland of Asthal announced the new regulations she made it clear that the whole regime should be made easier for the consumer to understand and for the legal representative to use and harder for any mischievous challenges to be brought. We need a common view on how best to achieve that and this consultation provides the opportunity to make significant progress.
The satellite litigation that unfortunately has been a prominent feature of personal injury litigation since April 2000 has highlighted the ease with which the legislation could be targeted. The apparent open opportunity the standard regulations have provided for defendants to bring so called 'technical' challenges has been frustrating to many. These challenges have largely been targeted at the CFA contractual and consumer requirements and aimed at exploiting minor omissions and mistakes in individual CFAs and to delay or render agreements non compliant and unenforceable.
The Court of Appeal comprehensively dealt with the matter of compliance and enforceability in its judgment of 22 May. The Court's findings included that a CFA should only be declared as being unenforceable if the breach is material and if the client could have relied on it successfully against his solicitor. In other words whether the breach had a "materially adverse effect on either the protection afforded to the client or upon the proper administration of justice".
The Court of Appeal's judgment does not however avert the need to consider further simplifying the CFA requirements and to what extent the provisions remain necessary and appropriate. Although I am keen to keep the amount of further statutory change to a minimum to avoid the risk of creating further uncertainty I think it is likely that further simplification of the CFA regime could in fact help bring about greater long-term stability for legal representatives and consumers.
I am confident that overall the conditions now exist for all parties to work together to resolve the areas of genuine concern and to achieve greater stability, simplicity and higher standards. I think this paper and the consultation that follows, including the proposed CFA Forum to be hosted by the Civil Justice Council in July, will form another part of the jigsaw being put together to end the costs disputes that have come to dominate personal injury litigation and to make effective and responsible access to justice for the consumer the primary issue for us all once again.
David Lammy MP
Parliamentary Under-Secretary, Department for Constitutional Affairs
There are concerns that the Conditional Fee Agreements (CFA) requirements are too complicated and do not reflect the actual needs of consumers or the legal representative. The CFA Regulations 2000 include comprehensive contractual and consumer protection provisions. It has been argued that these requirements are too stringent and that the consumer has a level of protection that is unnecessary because the need for that protection has declined significantly.
We introduced initial simplifications to the CFA Regulations requirements on 2 June 2003 in support of amendments to make plain that defined types of CFAs abrogate the Indemnity Principle. The simpler regime introduced only applies to support certain defined types of CFAs but it has been argued that a similar approach could be introduced to apply to all types of CFA. Some have gone further and have suggested that the amount of statutory control could be minimal because the Solicitors' Costs Information and Client Care Code provides sufficient consumer protection. Others have been more cautious and commented that the CFA simple regime is remarkably spartan when compared with standard CFA requirements and have questioned whether the existing professional care and conduct rules are up to the task of protecting the consumer.
The aim of this consultation paper is to promote discussion on whether and how the secondary legislation could be simplified further and what elements of it should be governed by statutory powers, or could be left in the hands of the profession's practice rules. This includes considering the Membership Organisation Regulations as well as the CFA and CCFA Regulations 2000 (the latter two as amended by the CFA Miscellaneous Amendment Regulations 2003).
We would welcome views on the extent to which enhanced client care requirements are necessary and whether changes are desirable. The paper examines, where appropriate with reference to recent case law, the issues raised and questions the assumptions that informed the regulatory requirements introduced in April 2000. This includes taking into account the Court of Appeal's judgment of 22 May 2003 in the 'CFA test cases' both in terms of its extensive discussion on the development of CFAs, its analysis of the statutory requirements and its findings.
This paper should be read in the context of the Court of Appeal's judgment, particularly in relation to compliance with the regulatory requirements and the test as to whether any breach is of those requirements is material and if the client could have relied on it successfully against his solicitor. We would welcome views on how the impact of the Court's judgment and what, if any, further steps may be needed to ensure that compliance with the statutory requirements is judged with the concept of materiality firmly in mind.
We would also welcome general consideration of and views on the development of the CFA regime since April 2000 and its future direction.
To aid the process of responding to this consultation paper we have drawn up a series of questions that respondents may wish to refer to. Some are very specific to aspects of the regulations, others are more open-ended and provide the opportunity to comment more widely. The questions are not compulsory and respondents are free to provide responses in whatever format is preferred [Endnote 1].
The questions are, where appropriate, incorporated in the relevant part of the consultation paper and listed in the consultation questionnaire at the end of the paper.
This section considers the basic principles of costs, the development of client care in relation to costs and the background to CFAs and the Access to Justice Act 1999 reforms
The liability for meeting the costs of a solicitor in an action rests with the solicitor's client. The giving of instructions by a client to a solicitor constitutes the creation of a contract between them, and creates the solicitor's right to be paid his costs for pursuing a case, together with any disbursements incurred.
Where a party is successful in an action the general rule is that the unsuccessful party will be ordered to pay the reasonable costs of the successful party. A corollary of the ability to recover costs is that the paying party can object to those costs and seek an assessment by the court. The paying party may also object on the grounds that the agreement was invalid and therefore unenforceable.
In assessing the costs the court will allow a reasonable amount in respect of all costs reasonably incurred and any doubts about those costs will be resolved in the favour of the paying party. Where the court considers it appropriate, costs may be assessed in favour of the receiving party. The court also considers whether the costs claimed are proportionate to the issues at stake and complexity of the case.
The consequence of the court's discretion is that all or part of the costs incurred by the successful party may be disallowed, dependent on the circumstances of the case and its conduct. This may occur where a client has required his solicitor to undertake additional steps in proceedings or commission second and third expert reports. In such circumstances the court may judge that it is not reasonable for the unsuccessful party to meet those costs and the costs allowed 'between the parties' will be lower than the amount for which the successful party is liable to his solicitor.
The Indemnity Principle at its most simplistic is a tool for ensuring that a receiving party does not receive more from his opponent in costs than he is actually liable to pay out. However, the operation of the principle is such that a lawyer cannot enter into an agreement with his client that indicates that he would be content to receive less than the optimum amount. Although legislation legitimised financial arrangements which provide for no costs recovery from the client in lost cases, that legislation did not legitimise reduced costs recovery in winning cases. For instance a solicitor cannot agree to be content with what is recovered from the losing party and not seek to recover the remainder of the 'bill' from the client.
Objections based on perceived breaches of the principle have increased as paying parties have sought ways in which to delay or avoid paying costs. This has meant that, despite the introduction of legislation legitimising a range of agreements, lawyers continue to use agreements which purport to indemnify the lawyer for any shortfall on costs even though, in fact, there is a tacit agreement that the lawyer will be content with whatever he can recover. Not surprisingly clients tend to become disconcerted by the conflicting information provided by their lawyer. Many professionals also have difficulty appreciating that the principle can continue to apply to successful cases funded under a CFA if there is any indication that full recovery is not contemplated.
The difficulties associated with this lack of transparency informed the Access to Justice Act 1999. The Government introduced a provision in the Act (s.31) to amend s 51 of the Supreme Court Act that would, in effect, allow rules of court to limit or regulate the indemnity principle. It did not however provide for the "abolition" of the principle. Outright abolition of the principle through primary legislation was considered by the Department at the time but rejected as impracticable.
S.31 was commenced on 2 June 2003 along with amendments to the Civil Procedure Rules, the CFA and CCFA Regulations. The combined effect of these changes is to provide for the abrogation of the indemnity principle in respect of a defined type of CFA. Legal representatives will be able to agree lawfully with their clients not to seek to recover anything in excess of the sums recovered in the proceedings and are no longer prevented from contracting with their clients in such terms. So for example, solicitors will be able to guarantee to a client all their damages and simply be paid whatever reasonable costs can be recovered from the losing side.
The Solicitor's Practice Rules 1990 provide the rules and principles for professional conduct. Practice Rule 15 (costs information and client care) and the Solicitors' Costs Information and Client Care Code 1999 came into force on 3 September 1999 and regulate the information solicitors provide to their clients. At the same time the Law Society published its Guide to the Professional Conduct of Solicitors which provided more detailed guidance on a solicitor's responsibilities to his client. When a solicitor runs a case with a CFA the professional standards apply plus the requirements in the CFA regulations and Civil Procedures Rules.
Practice Rule 15 states that solicitors shall:
(a) give information about costs and other, matters, and
(b) operate a complaints handling procedure
in accordance with a Solicitors' Costs Information and Client Care Code made from time to time by the Council of the Law Society with the concurrence of the Master of the Rolls, but subject to the notes
Paragraph 1(b) of the Code states
The main object of the code is to make sure clients are given the information they need to understand what is happening generally and in particular on:
(i) the costs of legal services both at the outset and as a matter progresses: and
(ii) responsibility for clients matters.
Paragraph 3 requires that the costs information "must be given clearly, in a way and at a level which is appropriate to the particular client". It also states that "all information given orally should be confirmed in writing". Paragraph 4 of the Code relates to the general information on costs that must be provided to the client at the outset of the matter and at appropriate stages throughout. It incorporates requirements relating to the basis of the firm's charges, estimates of likely costs, costs benefit analysis and the range of ways in which the client might fund the action. This latter section requires the solicitor to enquire whether the client is eligible for public funding, has pre-existing insurance which would suffice, is a member of a trade union or similar, or should purchase specific after the event insurance. Paragraph 5 relates to the client's liability for costs.
A serious breach of the code (or persistent breaches of a material nature) is a breach of the Rule and can also be evidence of inadequate professional services. Penalties apply where the Office for the Supervision of Solicitors (OSS) finds evidence of inadequate professional services. The OSS may also consider allegations that a solicitor has failed to comply with the rules of professional conduct. If a finding of misconduct is made, its powers include reprimanding the solicitor and referring the solicitor to the Solicitors Disciplinary Tribunal (SDT). The principal function of the SDT is to hear and determine applications in respect of allegations against solicitors un-befitting conduct or breaches of the rules relating to professional practice, conduct and discipline.
Since their introduction in 1995, the Law Society has produced guidance for solicitors about the use of conditional fee agreements and a model agreement for use between clients and solicitors. Prior to April 2000 when it was not possible to recover the success fee from the losing side it also advised solicitors to apply a voluntary limit of 25% on the proportion of damages that a success fee should represent.
Conditional fee agreements (CFAs) were introduced by Section 58 of the Courts and Legal Services Act 1990. This made provision for agreements in which it was explicit that part or all of the solicitor's fees were payable only in the event of success. CFAs, also known as 'no win no fee' agreements, allow a solicitor to take a case on the understanding that, if the case is lost, he will not charge his client for the work he has done (or he will charge at a lower rate). However, if the case is successful, the solicitor can charge a success fee on top of his normal fee, to compensate him for the risk he has run of not being paid. That success fee is calculated as a percentage of his normal fee and the level at which the success fee is set reflects the risk involved. Prior to the changes under the Access to Justice Act 1999, any success fee was payable by the client.
The definition of a CFA is limited to agreements specified by Order made by the Lord Chancellor, which comply with requirements prescribed in regulations. A CFA which complies with the requirements is not unenforceable by reason of its being a CFA, unless it relates to criminal proceedings, family proceedings, or proceedings which have not been specified. Where the CFA relates to such proceedings, or does not comply with the requirements in the regulations, the Act provides that the agreement is unenforceable. The success fee is enforceable only where it complies with the prescribed requirements; relates to specified proceedings; and the percentage increase does not exceed that set out in the order specifying the proceedings.
The first Order was brought into force on 5 July 1995 [Endnote 2]. This limited conditional fee agreements to personal injury cases, insolvency cases and cases before the European Court of Human Rights. Regulations specifying the information that a conditional fee agreement must contain and which must be brought to the client's attention were also brought into force at that time. In July 1998 the range of proceedings was extended as far as possible under the 1990 Act to all civil proceedings other than family, but the regulatory requirements remained unchanged.
Membership organisations (such as trade unions or the RAC) have traditionally provided legal services to their members as part of their general services. Members with sufficiently strong cases use lawyers retained by the membership organisation, which indemnifies its members against any liability for their opponents' costs should their claims be unsuccessful.
The Government was aware of the concerns of membership organisations that they were prevented from providing the fullest legal assistance to their members and families because the nature of their schemes did not sit easily with the legislative constraints of conditional fees and insurance. Membership organisations are nearly always sufficiently large that, rather than incurring the costs of commercial insurance premiums for each individual member supported, they meet the costs directly in the cases that their members lose. In essence, they 'self insure'.
Trade unions and others mass providers also complained that entering into individual agreements for each member or client amounted to an undue administrative burden which undermined their attempts to provide increased access to justice. The Government wished to ensure that bulk providers could enjoy economies of scale, reduced regulatory burdens and enhanced competitiveness. During the passage of the Act, Ministers gave a clear undertaking that regulations would be drawn up which would enable those who engaged in the provision or purchase of legal services en masse to make use of CFAs.
The Government's objective in the Access to Justice Act 1999 (the Act) was to make justice affordable to all, to discourage weak claims and encourage early settlement. Allied to this was the desire to ease the administrative burden on those providing and purchasing legal services. The provisions in the Act gave effect to Parliament's intention to increase access to justice by making it easier and more affordable to use conditional fee agreements, insurance policies and equivalent forms of funding.
The Act amongst other things made recoverable from the paying party the success fee, specific insurance premiums and the self-insurance costs of membership organisations. The previous inability to recover these costs had been seen as a major barrier to accessing the courts since it:
effectively reduced the damages recovered;
inhibited the use of these alternatives in non money claims or claims with minimal damages;
inhibited the use of these alternatives by defendants.
Whilst the Access to Justice Act received Royal Assent on 27 July 1999 the sections relating to CFAs and alternative methods of funding were not commenced immediately. Consultation on the detail of the practical operation of the amended regime took place between September and November 1999, in the paper Conditional Fees: Sharing the Risk Of Litigation (September 1999).
A comprehensive research study has now been commissioned which will provide an enhanced evidence base on the effects of CFAs on the outcome of personal injury litigation. The research will examine the effects of reforms introduced in England and Wales in April 2000 to make success fees and after-the-event insurance premiums recoverable. It will also explore the handling of clinical negligence cases and the role being played by funding mechanisms in these cases and review experience in relation to funding mechanisms in other European jurisdictions. The first two parts of this work will build on the study, Impact of Conditional Fees on Personal Injury Litigation by Fenn, Gray, Rickman and Carrier (Oct 2002), recently completed for the Department. This produced benchmark data for assessing the effects of changes in recoverability rules and for charting developments in the mechanisms being used to fund personal injury claims.
The research will include collecting a random sample of case-level data designed to be comparable with that collected in the earlier study so that meaningful comparisons can be undertaken. A cross-section analysis will be carried out to examine how post-2000 cases are running and to examine the range of funding mechanisms being employed. There will also be a comparative analysis over time to compare (non-clinical negligence) personal injury cases before and after the recoverability reforms in order to examine the effects of these changes. By collecting a random sample of clinical negligence claims arising since 1999 under legal aid and alternative funding mechanisms, the research should be able to shed some light on the use of different strategies for ensuring access to this area of law and at the impacts these have on case handling. The research is due to be completed by the summer of 2004.
This section explains the development of the secondary legislation arising from the Access to Justice Act 1999.
The Government's consultation in September 1999 on the new regime took the opportunity to investigate whether the existing regulations, The Conditional Fee Agreements Regulations 1995, were sufficiently robust in the light of experience. Preliminary research, Nothing to Lose? Clients' experiences of using conditional fees, University of Westminster, had indicated that clients did not understand the way in which CFAs operated, despite specific information being provided by the solicitor (as required by professional rules). The consultation paper recognised that a number of factors may have contributed to the situation and observed that clients were equally unlikely to understand the implications of the majority of the technical aspects of litigation. However, given the findings of the research, the paper sought comments on the following:
Should the solicitor be under an obligation to explain the agreement to the client in addition to providing written information?
Should the solicitor be required to discuss with the client the desirability of insurance cover in a CFA, to cover the client's own costs liability and their potential liability for their opponent's costs?
Should the solicitor be under an obligation to advise on the relative advantages and disadvantages of the available insurance funding products and to explain in detail what cover, etc. the recommended products provide?
Responses to the consultation paper indicated a range of views on the extent to which additional client care requirements were necessary. A number of respondents believed that the professional rules on costs information and client care provided sufficient protection. However, the Government favoured the argument that further and better details should be provided, given clients' experience of compliance with the professional codes.
The Conditional Fee Agreements Regulations 2000 were introduced in April 2000. In addition to incorporating the requirements of the earlier regulations, the new regulations made explicit the requirements in the Solicitors Client Care Code by employing a general requirement to inform the client about alternative methods of funding. In addition, the regulations required the solicitor to explain his reasons for recommending a specific contract of insurance (where he did so) and to declare whether he had a reason for so doing. They also introduced a requirement to provide an oral explanation of specified information.
Section 30 of the Act provided that regulated prescribed bodies could recover a sum towards the provision made to protect the member against the risk of having to meet an opponent's costs. The section also allowed for regulations to be made prescribing the maximum amount that could be recovered in this way. The consultation paper sought views on the factors that should inform the Lord Chancellor when prescribing these bodies and on the way in which the self recovery element should operate.
Few responses addressed the particular points and there was no consensus amongst those that did. Rather than setting down rigid criteria for prescription, the regulations require the organisations to be ones approved by the Lord Chancellor. Each application will be considered on its merits. In setting the maximum amount that could be recovered, the Government recognised that a single figure would not suffice given the range of likely cases. The regulations therefore provide that the maximum amount that can be recovered should not exceed the likely cost of an equivalent commercial policy. Finally, the regulations mirror to a limited extent the client care requirements in the Conditional Fee Agreements Regulations 2000.
Prior to November 2000 the secondary legislation related solely to CFAs entered into on an individual basis. This, it was argued, worked against the interests of mass providers and restricted access. Given that the provision of legal services en masse is a discrete area of limited concern to the 'high street' solicitor, the decision was taken to consult on the issue separately, once the general and membership organisation regulations had been introduced. The Government recognised that the needs of different providers and clients would be disparate and the consultation paper, Collective Conditional Fees, June 2000, therefore sought views on the shape of a scheme that could incorporate a variety of users. It also sought comments on the extent to which the client (as opposed to the 'funder') should play an active part in the agreement. Draft regulations were circulated as a basis for consultation.
Responses to consultation and a seminar [Endnote 3] on the issues raised in consultation informed the Government's conclusions [Endnote 4]. Very few respondents addressed the general scheme proposed, concentrating on the drafting and on changes to specific elements of the scheme.
The resulting regulations, amongst other things, provide a definition of a collective agreement and mirror the contractual requirements set out in the general regulations. Where the collective regulations differ from the general regulations is in the area of information to be provided to the client. The Government recognised that not all potential users required or needed the detailed information set out in the general regulations. While it was clear that where the client had a personal liability arising from the case it was only right that the liability was explained, the fact that the case was funded on a collective basis should not affect the duty of care owed by the legal representative to his client. As such there was no need to include detailed client care provisions in the regulations. The CCFA regulations also differ from the general regulations in that there is no specific requirement for the client to sign the agreement.
The Conditional Fee Agreements (Miscellaneous Amendments) Regulations 2003
The Civil Procedure (Amendment No 2) Rules 2003
The Access to Justice Act 1999 (Commencement No 10) Order 2003
The 2003 regulations amended the CFA and CCFA Regulations 2000 to make it plain that a conditional fee agreement in which the client is only liable to pay his solicitors fees and expenses if and to the extent that he recovers costs or damages in the proceedings is an enforceable agreement. The amendments, in conjunction with the commencement of Section 31 of the Access to Justice Act 1999 and amendment to rule 43.2 of the Civil Procedure Rules made by rule 5(b) of the amending rules, were developed to ensure the indemnity principle is abrogated in relation to the type of CFA provided for by the amended regulations. In other words solicitors can agree lawfully with their clients not to seek to recover anything in excess of the sums recovered in the relevant proceedings and will no longer be prevented from openly contracting with their clients on these terms.
The amending regulations defined the contract and consumer protection requirements that should apply where the client's liability for costs is limited to the sums recovered and dis-applied those contract and consumer elements of the existing regulations that are superfluous to the defined type of CFA. The amendments also specified that the solicitor must explain to the client any circumstances in which the client will in fact be liable to pay the solicitors costs.
Amendments were necessary to the general and collective regulations to permit such agreements to be used and the opportunity was taken to consider the extent to which the existing regulations continued to be appropriate. Given the acknowledged simplified nature of the primary type of agreements provided for, the existing regulations were regarded as excessive. The resulting regulations therefore removed much of the detailed consumer protection aspects of the general and, to a lesser extent, the collective regulations.
However, clients still receive a good degree of protection. Legal representatives have obligations under their professional codes that are designed to ensure that clients are given the information they need in order to understand what is happening, and in particular are informed of the cost of legal services at the outset and as the case progresses. The 2003 regulations also require the legal representative:
To specify the circumstances in which the client retains a liability and limits those circumstances to -
failure to co-operate with the legal representative as to the relevant proceedings;
failure to attend any medical or expert examination or court hearing the legal representative reasonably requested him to attend;
failure to give necessary instructions to the legal representative; or
withdrawal of instructions from the legal representative.
to inform the client as to the circumstances in which they may be liable to pay the costs of the legal representative;
if the client requires any further explanation, advice or other information about the matter referred to above, provide such further explanation, advice or other information about it as the client may reasonably require
The amendment to CPR rule 43.2(3) and (4) allowed for costs under the type of CFA provided for by the above amending regulations to be recoverable for the purposes of CPR Parts 44 to 48. The order commenced section 31 of the Access to Justice Act 1999, which allows rules to be made that limit or regulate the indemnity principle.
In the context of the Access to Justice and Civil Procedure reforms, this section considers the range of legal challenges brought against the legislation and individual agreements, the Court of Appeal's recent judgment in relation to 'technical' challenges, the scope of secondary legislation to restrict challenges to the client or on the grounds of materiality and the difficulties faced by solicitors in explaining CFAs.
Whilst the introduction of the ability to recover the success fee, insurance premium, or membership organisation premium (collectively known as additional liabilities) did not alter the courts' general discretion on costs it did represent a significant shift in liability. The paying party now became potentially liable for costs, which had once been the sole responsibility of the receiving party. This change together with the removal of public funding for the majority of personal injury cases saw a major change in the profile of the market, particularly in personal injury. Having been once dominated by the Legal Aid Board and relatively few privately funded cases, it changed to a predominantly private market supported by a range of providers, including claims management companies.
At the same time, the effect of the changes to the civil courts (the ''Woolf' Reforms) which were commenced in 1999, began to assert themselves. Pre-action protocols in the areas of clinical negligence and personal injury cases came into force on 26 April 1999 in conjunction with the first tranche of the new rules. The objective of the protocol was to formalise and improve contact between the parties before legal proceedings were started, thereby encouraging settlement without recourse to the courts and narrowing the issues in dispute in cases that do go to court.
Research into the impact of the reforms [Endnote 5] indicated that, while broadly positive, there was some evidence that both damages and costs had risen in personal injury cases. Claimant solicitors felt that costs had been increased since more work was required at an earlier stage, although the fact that fewer claims were being issued was thought to mean an 'obvious' cost reduction. Insurers were of the view that the average cost of dealing with a personal injury claim had increased markedly and that the introduction of pre-action protocols had resulted in the front-loading of costs into the period before proceedings are issued.
More recent research on the Costs of Low Value Road Traffic Act Claims 1997-2002 [Endnote 6] suggested an increase of approximately 25% in base costs between mid-2000 to end 2001, and approximately 10% increase in disbursements over the same period. The increase in base costs and disbursements over this period was greatest for non-litigated cases (50% and 25% respectively). The research showed that base costs rise proportionately with damages and are sensitive to measures of case complexity. The research also found that there was little difference between CFA and non-CFA claims with respect to agreed base costs and disbursements and success fees and ATE premiums were a relatively small part of overall costs recovered from insurers. The researchers concluded that the cost increases observed could not readily be ascribed to recoverability changes rules introduced in April 2000.
Paying parties are entitled to seek an assessment of costs where they believe the costs claimed are unreasonable and it is argued that the combination of the changes has led to costs escalating unreasonably. As a result a succession of challenges have been brought to establish what are 'reasonable' costs and when they are reasonably incurred in cases funded by CFAs or equivalent agreements.
The basis for the challenges have ranged from a fundamental examination of the powers and scope of the primary legislation (Callery v Gray, Sarwar v Alam) to examinations of the way in which a lawyer delegates his client care responsibility (The Accident Group cases ) and have included challenges on interpretation of specific words or phrases in the legislation (Woods v Chaleff). More recently the challenges concentrated on the extent to which the lawyer has complied with specific requirements in the relevant regulations with particular (but not exclusive) emphasis on the client care requirements under regulation 4 of the general regulations.
The challenges have therefore fallen into two main groups - problems with the contractual terms of the agreement and client care shortcomings. A number of challenges have been made based on non-compliance with regulation 2 (the requirements with which a CFA must comply with regard to its contents) and regulation 4 (information which a legal representative must provide to a client before entering into a CFA). There have also been challenges over the defendant's right to see the CFA in full. The Rules of Court only provide for an explicit right to see the justification for the success fee (where challenged), anything else being down to the court's discretion in respect of discovery.
It has been argued that relatively minor shortcomings or omissions in individual agreements are being used as a means by which the paying party can avoid or delay the payment of cost. In particular, there are concerns that provisions which apply to the service provided by the legal representative to the client have been subverted and used as an avoidance tool by the paying party. The receiving party argues there is no logical reason why a paying party has an interest in the level of service his opponent has received from his solicitor.
There have also been concerns that 'fishing' exercises for evidence of non-compliance has led to increased costs for the ultimately successful client since, many will have raised a loan to finance the insurance policy. The interest on the loan continues to accrue whilst the costs remain unsettled and that interest is not recoverable. Any delay in payment also affects the legal representative's cash flow.
Some defendants have argued that they have been acting in the public interest since Parliament must have placed the requirements in regulations for a purpose. They also have argued that they should have the right to police the compliance of the CFA, as the client usually has no interest in it. The client is ill placed to recognise that their legal representative has not complied with the regulatory requirements and may not be aware of the implications. Others have argued that the CFA client care and some other requirements are unnecessarily burdensome given the client's risk of liability for costs has effectively diminished with the April 2000 reforms.
On 22 May 2003 the Court of Appeal handed down its judgment in respect of six appeals concerned with a number of aspects of the CFA regime introduced in April 2000. The judgment is available at www.bailii.org/ew/cases/EWCA/Civ/2003/718 and this paper will not attempt to reproduce the fine detail of it. However, it is worth highlighting the Court's main findings, which should be taken into account when formulating responses to this consultation paper.
The Court of Appeal found that a CFA should only be declared as being unenforceable if any breach found was material. The Court's reasoning was that a CFA will only be unenforceable if in the circumstances of the particular case the conditions applicable to it by virtue of section 58 of the Courts and Legal Services Act 1990 have not been sufficiently complied with in the light of their statutory purposes.
The Court found that judges should ask themselves: "Has the particular departure from a regulation or 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 court considers that as between solicitor and client the client would have just cause for complaint because some requirement introduced for his protection was not satisfied, or that the CFA otherwise offends public policy, then the CFA will be unenforceable. If the breach was found to be material the client should still be able to recover any disbursements already financed, whether personally or through a loan, and any after the event insurance premium.
The Court of Appeal made it clear that the courts must prevent satellite litigation about costs from being protracted by allegations about breaches of the CFA Regulations where the breaches do not matter. A CFA should only be declared as being unenforceable if the breach does matter and if the client could have relied on it successfully against his solicitor.
"The parliamentary purpose is to enhance access to justice, not to impede it, and to create better ways of delivering litigation services, not worse ones. These purposes will be thwarted if those who render good service to their clients under CFAs are at risk of going unremunerated at the culmination of the bitter trench warfare that has been such an unhappy feature of the recent litigation scene".
The Court also found that it should be normal practice for a CFA to be disclosed for the purpose of costs proceedings and hoped that receiving parties would simply disclose the CFA if asked to do so by the defendant. If the CFA contains confidential information relating to other proceedings, that information may be removed before disclosure takes place. Attendance notes and other correspondence should not ordinarily be disclosed, but the judge conducting the assessment may require the disclosure of material of this kind if a genuine issue is raised.
In the individual appeals the Court found that there was no material breach in any of the cases and made various orders as appropriate to each appeal. In The Accident Group (TAG) test cases the court explained its reasons for upholding the judgment of Master Hurst who had held that there was not inevitably going to be a breach of the Regulations simply because a solicitor delegated some of his obligations to a TAG representative. It laid stress, however, on the solicitor's supervisory responsibilities in these circumstances.
Prior to the CFA test cases the Department considered the extent to which existing or prospective legislative powers (whether specific legislation or rules of court and practice directions) could address the difficulties raised by stakeholders, should the Department come to the conclusion that action was necessary. In particular, consideration was given to methods of limiting the ability to challenge the client care element to the party actually affected by any deficiency in client care, that is, the client. A less restrictive possibility considered was to allow challenges but only on the basis that the omissions or faults were material to the case and the challenge was a proportional action. Consideration was also given to possibilities such as increasing the courts case management powers under the Civil Procedure Rules and clarifying the extent to which a receiving party must disclose the actual CFA (rather than the overview of its terms).
The primary legislation prescribes what is and is not an enforceable CFA. Section 58 of the Courts and Legal Services Act 1990 provides that:
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 subsection (5)) any other conditional fee agreement shall be unenforceable.
For a CFA to be enforceable it must, inter alia, "comply with such requirements (if any) as may be prescribed by the Lord Chancellor" (s.58 (3)(c)). Such requirements are provided for in the 2000 Regulations. On the face of it non-compliance with requirements in the regulations leads to the CFA being unenforceable and any party, including the paying party, is entitled to rely on section 58 to argue that an agreement is unenforceable.
The statutory requirement to comply therefore lies in the primary legislation. While the requirements in the regulations may be amended or redrawn so that the conditions for compliance become less onerous, the regulations cannot be used to amend the extent to which an agreement complies with the primary legislation. So, for example, regulations cannot provide that paying parties may not seek to challenge the validity of the CFA. It also follows that there is no power for the regulations to specify what is a material breach.
The only way in which challenges could be restricted to the client or to material breaches is by amending the primary legislation or through the interpretation of the existing legislation by the courts. S.58 could be amended to provide explicitly that only the party who entered into the agreement may be permitted to rely on the section to argue that the agreement is unenforceable or to provide that only material breaches render the agreement unenforceable. However, given the Court of Appeal's judgment of 22 May it would appear not necessary to consider such a provision.
| Q1 Following the Court of Appeal's judgment of 22 May 2003 is any additional legislative action necessary to provide that only material breaches of the CFA requirements should render agreements unenforceable and if so what changes would need to be made? |
The Regulations governing CFAs have sought historically to ensure that the client is given sufficient information to understand what a CFA is; what the implications are in entering into a CFA, (both if they are successful or unsuccessful) the alternatives ways of financing the action other than through a CFA; and the client's ability to seek an assessment of their solicitor's fees. As paragraph 26 explains, the decision to place enhanced client care provisions in the 2000 Regulations was informed by research into clients' experiences of litigation generally and CFAs specifically. However, concerns have increased that the regulations are overly complicated and that they do not reflect the actual needs of the client.
In response to the Government's consultation on the proposed content of the April 2000 regulations a number of parties, including the Law Society and Senior Costs Judge, argued that the Costs Information and Client Care Code 1999 covered adequately the need to provide additional information to the client about CFAs and there was no need for additional regulations. The Senior Costs Judge returned to this theme in his judgment on the Accident Group Test cases [Endnote 7] :
"It is clear that the purpose of the CFA Regulations 2000 is to protect consumers. The 1995 Regulations which they replaced were very much simpler and dealt with a situation where the successful client was expected to pay the success fee out of the damages recovered. The introduction of recoverable success fees led to the drafting of very much more stringent requirements, thus the consumer was given a greater level of protection at a time when the need for that protection had declined significantly. Clients are now faced with the extremely confusing situation that legal representatives inform them that they will never have to pay anything win or lose, but then take them through a series of extremely complicated documents in which, effectively, they agree to be liable for the legal representative's costs and expenses in the event of success (they also have to be taken through the ATE insurance policy which will protect them against claims for costs from a winning opponent and, if the ATE premium is financed by a loan, through consumer credit documents as well)........"(paragraph 94)
This mirrors the concerns of some sections of the profession who believe that the CFA (and related) regulations do not provide the appropriate balance of rights and responsibilities between the parties and between the solicitor and client. Many clients have difficulties understanding the detail of the agreements or comprehending why they need the information. Many are also of the view that the ability to recover the success fee and other costs has reduced the potential liabilities for the client and that the statutory requirements are therefore disproportional to the mischief they set out to address.
A survey [Endnote 8] by the Law Society in 2002 of private practice firms in England and Wales and their civil litigation work found that 61% of the firms which had used CFAs in the preceding two years had experienced difficulty in explaining them to clients. The main reasons cited by those surveyed were that the regulations were or system were too complex and that the concept or detail involved was difficult for people to understand. Other reasons included difficulty in explaining success fees and recovery, the indemnity principle and clients' expectation of 'no win no fee' and not understanding liability.
Research [Endnote 9] undertaken for the Office of the Supervision of Solicitors (OSS) indicated that the third most common problem which clients experienced with their solicitor was lack of information (37%), with failure to inform the client of their costs at 21%. Although it is in the solicitor's interest to provide full and accurate information about costs, many complaints arise because solicitors have failed to communicate adequately with their clients. Some solicitors assume a degree of knowledge on the parts of clients, which can be misplaced, particularly where the work is contentious.
| Q2 To what extent do the existing professional rules provide the client with information appropriate to his or her needs. Q3 To what extent has the combination of case law and legislation contributed to a change in client care needs? Q4 What elements of the contractual and consumer protection provisions should be regulated in secondary legislation and what can be governed by professional practice rules? |
This section looks at the CFA regulations in more detail, considering regulation by regulation whether changes are needed.
Regulation 2
Regulation 2 sets out the 'contractual' elements which an agreement must include, if it is to be a CFA under section 58 of the Courts and Legal Services Act 1990. The regulation requires the solicitor to define the extent of the agreement's cover, when payment is due and how that payment is calculated. Prior to the introduction of recoverability of the additional costs, there had been no known challenges to compliance with regulation 2.
"Requirements for contents of conditional fee agreements: general
2. - (1) A conditional fee agreement must specify-
(a) the particular proceedings or parts of them to which it relates (including whether it relates to any appeal, counterclaim or proceedings to enforce a judgement or order),
(b) the circumstances in which the legal representative's fees and expenses, or part of them, are payable,
(c) what payment, if any, is due -
(i) if those circumstances only partly occur,
(ii) irrespective of whether those circumstances occur, and
(iii) on the termination of the agreement for any reason, and
(d) the amounts which are payable in all the circumstances and cases specified or the method to be used to calculate them and, in particular, whether the amounts are limited by reference to the damages which may be recovered on behalf of the client.
(2) A conditional fee agreement to which regulation 4 applies must contain a statement that the requirements of that regulation which apply in the case of that agreement have been complied with".
The requirements, to a large extent, replicate the 1995 regulations. The exception was the addition of regulation 2(2), which introduced a requirement to include a statement that regulation 4 (client care), had been complied with. Any other differences between the 1995 and 2000 versions of regulation 2 were a result of differing drafting styles rather than a change in policy or intent.
The effect of Regulation 2 is to clearly set out the terms and conditions of the contract between the client and solicitor. This is important since ultimately the client is liable for any costs arising from that contract and should be aware of the events which can lead to that liability coming into play. It is also important that the client is aware of precisely what proceedings are covered by the agreement.
However, it could be argued that the regulation is superfluous since it duplicates the professional rules relating to scope of retainer, remuneration and costs recovery information. In particular it is questionable whether the level of detail in 2(1)(c) is necessary given that 2(1)(b) provides a general requirement to specify the circumstances in which the solicitor's fees are payable. It is also questionable whether 2(1)(d) is necessary in its present form given the changes which have taken place on recovery. 2(1)(d) refers to amounts being limited by reference to the damages recovered. This is a remnant of the pre recovery days when solicitors would limit the recoverable own client costs to a stated percentage of the damages.
| Q5 To what extent is 2(1)(c) superfluous? Q6 To what extent does regulation 2(1)(d) require a reference to damages? Q7 What other changes to Regulation 2 are desirable in the interests of justice? |
Regulation 3
Regulation 3 was introduced into the 1995 regulations as a direct consequence of the ability to recover the success fee and applies solely to agreements that provide for a success fee. Amongst other things the regulation requires the solicitor to set out the reason why the success fee is set at a particular figure and whether that figure includes an element towards the solicitor's cost of deferring receipt of payment.
"Requirements for contents of conditional fee agreements providing for success fees
3. - (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........"
Regulation 3(1)(a) provides the client (and the court on assessment) with contemporary information on the factors which informed the solicitor's decision to set the level of the success fee at a given rate. It reduces the negative effect of hindsight. Regulation 3(1)(b) relates to the solicitor's 'compensation' for agreeing to delaying payment on account. The Government does not believe that the costs of borrowing should be recoverable and the compensatory part of success fee should therefore be identified. However, the drafting of Regulation 3(1)(b) has brought challenges around the phrase 'if any', with the challenger arguing that the agreement must specify that there is no compensatory element and that if it doesn't specifically say so it does not comply with the regulations and is therefore unenforceable. It was not the intention of the drafter to require the solicitor to state that there was no compensatory element in the success fee and would therefore seem that any potential ambivalence could be removed.
| Q8 Do you think that Regulation 3(1)(b) should be amended to make clear that the requirement to disclose the compensatory element only applies where there actually is a compensatory element? |
Regulation 3(2) relates to the consequences for the solicitor and client of entering into the CFA with a success fee. It provides for disclosure to the court of the reasons for setting the success fee at a given level; the ability for the solicitor to recover the disallowed element of the success fee where the court approves and prevents the solicitor from agreeing with the paying party to a lesser success fee and recovering the difference from the client unless the court allows otherwise. Regulation 3(3) defines percentage increase.
| Q9 To what extent do regulations 3(2) and 3(3) continue to be relevant? |
Regulation 3A (as inserted by the Conditional Fee Agreements (Miscellaneous Amendment) Regulations 2003)
Regulation 3A defines the requirements with which an agreement where the client's liability for costs is limited to the sums recovered, whether by costs or otherwise, must comply. The regulation dis-applies regulations 2, 3 and 4 and inserts a simpler set of requirements. The regulation also allows for the CFA to specify that the client will be liable for the solicitor's costs in circumstances where the client decides to abandon the case for no good reason or behaves unreasonably in some other way and the solicitor might reasonably decide to recover the costs expended to that point.
"Requirements where the client's liability is limited to sums recovered
3A.-(1) This regulation applies to a conditional fee agreement under which, except in the circumstances set out in paragraph (5), the client is liable to pay his legal representative's fees and expenses only to the extent that sums are recovered in respect of the relevant proceedings, whether by way of costs or otherwise ......
(3) Regulations 2, 3 and 4 do not apply to a conditional fee agreement to which this regulation applies.
(4) A conditional fee agreement to which this regulation applies must-
(a) specify-
(i) the particular proceedings or parts of them to which it relates (including whether it relates to any appeal, counterclaim or proceedings to enforce a judgment or order); and
(ii) the circumstances in which the legal representative's fees and expenses, or part of them, are payable; and
(b) if it provides for a success fee-
(i) briefly specify the reasons for setting the percentage increase at the level stated in the agreement; and
(ii) provide that if, in court proceedings, the percentage increase becomes payable as a result of those proceedings and the legal representative or the client is ordered to disclose to the court or any other person the reasons for setting the percentage increase at the level stated in the agreement, he may do so.
(5) A conditional fee agreement to which this regulation applies may specify that the client will be liable to pay the legal representative's fees and expenses whether or not sums are recovered in respect of the relevant proceedings, if the client-
(a) fails to co-operate with the legal representative;
(b) fails to attend any medical or expert examination or court hearing which the legal representative reasonably requests him to attend;
(c) fails to give necessary instructions to the legal representative; or
(d) withdraws instructions from the legal representative.
(6) Before a conditional fee agreement to which this regulation applies is made, the legal representative must inform the client as to the circumstances in which the client may be liable to pay the legal representative's fees and expenses, and provide such further explanation, advice or other information as to those circumstances as the client may reasonably require."
| Q10 Are the simplified contract and consumer protection requirements as substituted by 3A appropriate to the type of CFA provided for in 3A(1) or could these requirements be simplified further? Q11 Are additional requirements needed to provide for simple CFAs that are contingent on the recovery of damages and if so should these be provided for in regulations, practice rules or in some other way? Q12 To what extent could the simplified contract and consumer protection requirements be extended to all CFAs? Q13 It is necessary for the Law Society guideline, that the amount recovered by way of success fee should be limited to 25% of the damages recovered, to be reintroduced to cater for those types of CFA where the agreement is contingent on the recovery of damages? |
Regulation 4
Regulation 4 built on the 1995 regulations and incorporated the sprit of the client care elements of the Solicitors' Practice Rules. Its aim was ensure that clients were aware of the consequences of entering into a CFA and that a CFA was a necessary means of funding, given the range of alternatives. The regulations therefore had a statutory requirement to provide information and advice to the client, with some of that advice provided orally and in writing. Regulation 4(1) sets out the requirement to provide information and discuss the issues with the client. The remainder of regulation 4 specifies what information is to be given, by whom, to what degree and in what circumstances.
"Information to be given before conditional fee agreements made
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.
(4) In the case of an agreement where -
(a) the legal representative is a body to which section 30 of the Access to Justice Act 1999 (recovery where body undertakes to meet costs liabilities) applies, and
(b) there are no circumstances in which the client may be liable to pay any costs in respect of the proceedings, paragraph (1) does not apply.
(5) Information required to be given under paragraph (1) about the matters in paragraph (2)(a) to (d) must be given orally (whether or not it is also given in writing), but information required to be so given about the matters in paragraph (2)(e) and the explanation required by paragraph (3) must be given both orally and in writing".
Regulation 4(2)(a) and (b) mirrored the 1995 regulations and regulations 4(2)(c) and (d) redrew the 1995 regulations in the light of the 200 changes and the professional rules (so that the reference to legal aid becomes a reference to existing insurance or other funding methods). These requirements sought to ensure that the client was aware of their potential liability, was given the opportunity to make an informed choice from the range of available options and was not put to any unnecessary expense, which might not be recovered.
| Q14 To what extent do regulations 4(2)(a) to (d) provide the client with necessary information and therefore continue to have a relevance? |
Regulation 4(2)(e) requires the solicitor to inform the client where he considers that a particular method of funding is appropriate. Where that method is insurance, or where a particular insurance contract is recommended, then the solicitor must declare why and whether he has an interest in it. The objective of regulation was to ensure that the client was aware of the ability to minimise liability through the use of insurance, whilst at the same time ensuring that they were not swayed by any (undeclared) interest on the part of the solicitor.
| Q15 To what extent is it necessary to single out insurance as a funding option? Q16 To what extent is it necessary for the solicitor to declare any interest? |
It has been argued that the detailed requirements relating to the information to be provided to the client are unnecessary since the existing provisions adequately cover these. In addition, the Law Society has recently launched a Clients' Charter which explains in simple terms what to expect from a solicitor and has also prepared a new series of Customer Guides will provide advice for potential clients. In launching the Charter Law Society Chief Executive Janet Paraskeva said:
"Easily the most consistent feature of complaints about solicitors' service is poor communication with clients often confused by legal jargon. But it's not just jargon - solicitors are also being encouraged to keep their clients informed.
"The Charter sets out in plain language the foundations on which the solicitor's relationship with a client rests. It will help foster a mutual understanding of the solicitor-client relationship."
| Q17 Is there an argument for making the regulations less detailed in their requirements, given the continuing presence of professional obligations? |
Given the nature of the funding arrangements and the regular involvement of a third party in indemnifying a client for costs, the CCFA regulations have fewer requirements than the general regulations. However, they do require the solicitor to specify the circumstances in which payment is due and they duplicate much of the requirements that relate to CFAs that provide for a success fee. The regulations also incorporate an element of client care in relation to any liability the client may have to the solicitor, place an obligation on the solicitor to provide advice and information to the client on a continuing basis and require the solicitor to confirm his acceptance of instructions in writing. There is no requirement for the client to sign the CCFA and the primary legislation has no such requirement.
The Conditional Fee Agreements (Miscellaneous Amendment) Regulations 2003 amend the CCFA regulations to make them consistent with the CFA regulations in respect of agreements in which the client is liable to pay his legal representatives fees and expenses only if and to the extent the he recovers costs or damages in the proceedings. As the consumer protection requirements in the CCFA regulations were already more simple the amendments made are more minor.
| Q18 Although the CCFA regulations will be considered in the light to responses to the questions on the general regulations, are any changes required to the specific CCFA Regulations, which would facilitate their ease of use? |
The Membership Organisation Regulations specify the way in which the Lord Chancellor prescribes the bodies which are entitled to recover a 'self insurance' premium. The regulations also set out the conditions which an arrangement must satisfy and the way in which the 'self insurance' premium is to be calculated. The regulations are permissive and place a minimal regulatory regime on membership organisations. In particular they require that the recoverable self-insurance element should not exceed the likely cost of an equivalent commercial premium. Although it is not proposed that the regulations relating to the prescription of the bodies or the way in which the premium is to be calculated should be amended, comments are sought on the contractual and other requirements in regulation 3.
"Requirements for arrangements to meet costs liabilities
3. - (1) Section 30(1) of the Access to Justice Act 1999 applies to arrangements which satisfy the following conditions
(2) The arrangements must be in writing.
(3) The arrangements must contain a statement specifying -
(a) the circumstances in which the member or other party may be liable to pay costs of the proceedings,
(b) whether such a liability arises -
(i) if those circumstances only partly occur,
(ii) irrespective of whether those circumstances occur, and
(iii) on the termination of the arrangements for any reason,
(c) the basis on which the amount of the liability is calculated, and
(d) the procedure for seeking assessment of costs.
(4) A copy of the part of the arrangements containing the statement must be given to the member or other party to the proceedings whose liabilities the body is undertaking to meet as soon as possible after the undertaking is given".
Although the requirements are there to ensure that the client is aware of the arrangements for payment of the solicitor's costs, given that the membership organisation will be indemnifying the member for any costs liability, it is questionable whether the amount of detail required to be sent to the client is strictly necessary. Whilst the client will need to be aware of personal liability, it seems unnecessary for the client to be informed of the other party's liability.
| Q19 To what extent does the client need to be aware of the membership organisation's liability. Q20 To what extent are 3(3)(b),(c) and (d) superfluous given professional rules on client care? Q21 Are any other changes necessary to facilitate the use of the regulations? |
We would appreciate responses in electronic form, either e-mail format or a Microsoft Word compatible file
The Conditional Fee Agreements Order 1995
25 July 2000 incorporating claimant and defendant providers, costs judges, the professions.
The Government's conclusions following consultation on Collective Conditional Fees (September 2000)
Further findings: A continuing evaluation of the civil justice reforms August 2002
Costs of Low Value RTA Claims 1997-2002 - A report prepared for the Civil Justice Council (January 31, 2003) by Paul Fenn University of Nottingham and Neil Rickman University of Surrey
Sharrat v London Central Bus Co 27 November 2002 Case no. PTH/0204771
Law Society Civil Litigation Survey Spring 2002
Office for the Supervision of Solicitors: Customer Focus Research 2001/2
The CFA and Related regulations
in full [59kb]
We would welcome responses in relation to any matter raised in this consultation paper and any other comments on the CFA regime prompted by this paper. There are though some specific questions covered in this paper that you may also wish to consider when responding to this paper.
Questions
Following the Court of Appeal's judgment of 22 May 2003 is any additional legislative action necessary to provide that only material breaches of the CFA requirements should render agreements unenforceable and if so what changes would need to be made?
To what extent do the existing professional rules provide the client with information appropriate to his or her needs?
To what extent has the combination of case law and legislation contributed to a change in client care needs?
What elements of the contractual and consumer protection provisions should be regulated in secondary legislation and what can be governed by professional practice rules?
To what extent is 2(1)(c) superfluous?
To what extent does regulation 2(1)(d) require a reference to damages?
What other changes to Regulation 2 are desirable in the interests of justice?
Do you think that Regulation 3(1)(b) should be amended to make clear that the requirement to disclose the compensatory element only applies where there actually is a compensatory element?
To what extent do regulations 3(2) and 3(3) continue to be relevant?
Are the simplified contract and consumer protection requirements as substituted by 3A appropriate to the type of CFA provided for in 3A(1) or could these requirements be simplified further?
Are additional requirements needed to provide for simple CFAs that are contingent on the recovery of damages and if so should these be provided for in regulations, practice rules or in some other way
To what extent could the simplified contract and consumer protection requirements be extended to all CFAs?
It is necessary for the Law Society guideline, that the amount recovered by way of success fee should be limited to 25% of the damages recovered, to be reintroduced to cater for those types of CFA where the agreement is contingent on the recovery of damages?
To what extent do regulations 4(2)(a) to (d) provide the client with necessary information and therefore continue to have any relevance?
To what extent is it necessary to single out insurance as a funding option?
To what extent is it necessary for the solicitor to declare any interest?
Is there an argument for making the regulations less detailed in their requirements, given the continuing presence of professional obligations?
Although the CCFA regulations will be considered in the light to responses to the questions on the general regulations, are any changes required to the specific CCFA Regulations, which would facilitate their use?
To what extent does the client need to be aware of the membership organisation's liability?
To what extent are 3(3)(b),(c) and (d) superfluous given professional rules on client care?
Are any other changes necessary to facilitate the use of the regulations?
Name:
Organisation:
Address:
If you are a representative group please give a summary of the people and organisations you represent.
Please send your completed response by 26 September 2003 to:
Afolake Tojuola
Department for Constitutional Affairs
Legal Services Development Division
6th Floor
Selborne House
54-60 Victoria Street
London SW1E 6QW
Tel: 0207 210 8792
Fax: 0207 210 0613
Email: Afolake Tojuola
If you have any complaints or comments about the consultation process, you should contact the Department's consultation co-ordinator, Laurence Fiddler, on 020 7210 8516 or email him at Laurence Fiddler. Alternatively, you may wish to write to the address below:
Laurence Fiddler
Consultation Co-ordinator
Department for Constitutional Affairs
Selborne House
54-60 Victoria Street
London SW1E 6QW
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