Errors in conditional fee agreements have been met with a conflicting approach from the courts.

At the Association of Cost Lawyers’ annual conference last week, barrister PJ Kirby QC pointed out an area of the law where the courts have been giving out worryingly inconsistent messages – sometimes with a big impact on solicitors.

It is about whether a claimant can recover their costs where the wrong defendant was named in a conditional fee agreement – and in fact, the issues at stake could potentially apply more broadly, to problems with any retainer, not just CFAs.

The law in this area can only be described as a mess. There have been at least five cases on the issue, and the decisions have ranged from all costs being recovered, to base fees but not success fees being recoverable, to no costs being recovered at all.

Mostly recently, in March this year we had the decision in Hailey v Assurance Mutuelle des Motards. In a road traffic accident claim involving a motorbike, the bike rider was named in the CFA, but the insurer wasn’t, with proceedings eventually issued against the insurer only. Somewhat harshly, despite winning a £400,000 settlement for their client, the claimant firm was not allowed to recover its costs from the defendant insurer (although in small consolation, it was allowed to recover its disbursements).

The deputy master acknowledged that the issue had been very difficult to decide, but found he was unable to construe a claim against the rider to be a claim against the insurer – and so there had been a breach of the indemnity principle, because the retainer between lawyer and client was invalid.

But is this a realistic assessment of the situation? Not according to Kirby, who sits as a deputy district judge as well as practising as a barrister. Say a claimant firm had successfully sued a defendant for £150,000. Could its client seriously turn around and say, ‘I know you’ve done all this work for me, and recovered all this compensation, but my agreement was only for you to another defendant – so I don’t have to pay you’. Surely the court is not likely to be very impressed by that.

The indemnity principle is supposed to mean that you cannot recover from the other side any sums that your client would not be obliged to pay. As, realistically, the client would struggle to get out of paying those sums, surely the defendant should not be allowed to escape them?

The good news is that there is a very easy way out of this situation. Kirby points out - as solicitor Kerry Underwood has also highlighted recently - that there is actually no need to mention the defendant at all in your CFA.

That seems like a much safer way to avoid an inconsistent and unpredictable approach by the courts on this issue.

Rachel Rothwell is editor of Litigation Funding magazine and a former Gazette news editor

Twitter: Follow @Rachel_Rothwell

Topics