The pros and cons of regime change

Litigation Funding December 2005

Since the beginning of November, claimant lawyers and defendant insurers and their lawyers have been climbing out of their opposing trenches to embrace and shake hands in the knowledge that the costs war is over.  Well, it was a nice thought, but perhaps not.  Now that the Conditional Fee Agreement (CFA) Regulations 2000 have been revoked and replaced with new rules-which it was hoped would miraculously defuse animosities as well as making conditional fees comprehensible to clients - there are very mixed feelings about the effectiveness of the new regime.

If you take three high-profile and outspoken claimant lawyers, you get three very different perspectives on life under simplified CFAs.  For example, Kerry Underwood, leading costs commentator and senior partner at Hemel Hempstead firm Underwoods, is a fan. "My view is that they will make a huge difference because, in theory at least, they remove the right of the insurer to make technical challenges, " he says, Mr Underwood is optimistic that the combined effect of the new regulations, plus the recent assertiveness of the appeal court judges, means that we are entering a new, happier era.

But Jeff Zindani, managing director of Birmingham based Forum Law, could not be any less convinced.  "From a technical challenge point of view, it has just gone crazy out there," he says.  The solicitor believes using the Law Society's new model agreement will just invite attacks from defendant insurers simply on the grounds that it is new and untested.  'It is a real mess, 'he maintains.

Meanwhile, Andrew Twarmbley, senior partner at Manchester firm Amealns and director of the claimant lawyer marketing network Injury Lawyers 4U, is just under whelmed.  'On paper it looks like a brave new world but, frankly, I don't see a real difference, 'he says.  He argues that the new regime should reduce anyway because of the Court of Appeal over the past two years'.  He adds: 'As far as I am concerned, it's the same as it always was because the new regime simply transfers regulation elsewhere.  It's more of the same.'

The idea behind the new-style CFA is to strip away all the unnecessary regulation to make the agreements, in the words of constitutional affairs minister Baroness Ashton, 'a simpler product', which would help consumers to 'better understand the agreements they enter in to and the risks they could face in contemplating litigation'.

The primary responsibility for client care now falls upon solicitors and the Law Society's professional rules of conduct, costs guidance and proposed new model CFA agreement.  The new Law Society agreement was published in the Gazette back in August.

Clearly it is very early days.  Rob Carter, head of the Forum of Insurance Lawyers' special interest group on costs, estimates it will take six to nine months for the first 'tremors' to register, if they come at all.  The only area that would give rise for concern is the potential perception on the claimant's side with that the 2000 regulations biting the dust, it is open season, 'he says.  'In other words, that (claimant lawyers) simply sign their clients up without reference to existing before-the-event insurance or by just paying lip service to it.'

Mr Carter considers the genuine 'good news' to be that simplification means there may well be individual disputes between claimant and defendant firms, but each case 'should turn on its own facts' as opposed to more generic attacks. 'Yes, satellite litigation might continue, but it is not going to be the cataclysmic trench warfare of before,' he comments. He predicts that, as a result of the ruling in Hollins v Russell [2003] 1 WLR 2487 plus the new regime, for a challenge to be effective it will have to concern 'a major breach that offends the administation of justice or provides a materially adverse affect to a claimant'.

Not everyone believes that the new Chancery Lane sponsored deal is the way forward.  The Association of simplification.  'But we seem to have replaced a seven page conditional fee agreement, plus a one-page rule 15 letter,' reflects Richard Langton, the group's vice-president.  He doubts whether the 'nuances' of regime change will have much significance t the bemused client.  He is still going to have to read though 'seven pages of stuff' he adds.

Mr Zindani plans to stick to the old agreement rather than take a chance on the Law Society version 'because at least it is tried and tested'; While Mr Langton suggests that many practitioners might do likewise.  'They will be reluctant to embark upon a new regime that may then be subject to a technical challenge by the insurance industry two years down the line, thereby rendering all their new agreements invalid,' he says.           

Gregg Cox, a partner at Manchester firm Colemans ctts, says it is unfortunate timing to introduce a new regime when it appears that the technical challenges are finally beginning to die down.  Although he has some sympathy with the policy-makers and points out that the government consultation started back in 2003, when 'all hell was breaking loose'.  The intention has to be right, but the process of reform has been 'like trying to turn a super tanker', he says.

Mr Cox points out that many firms' agreements have been up and running for five years now and had been tested within an inch of their lives through the courts in cased like Holllins, so lawyers were finally gaining their confidence,  'We are now in a situation where we will have new regulations, a completely new agreement, and there are already concerns being expressed about the wording of the new Law Society model, 'he insists - not least, confusion has arisen over whether it is a non-contentious agreement.  As he points out, if that is the case, cost disputes will fall within the Law Society's jurisdiction rather than the courts' regime of detailed assessments.

Sarah Cochrane, a partner at defendant firm Davis Lavery, argues that the new CFA scheme represents 'an entrenching of the CFA as a particular product and as a way of accessing justice'.  She says:  'The legal landscape will be forever changed as a result.' However she also argues that for CFAs to be successful Joe Public has to be able to afford after-the-vent insurance and, because of the consistently high cost of premiums, conditional fees are not providing access to justice.

Policy-makers will have to 'plug the gap in the market', Ms Cochrane continues.  She predicts that 'the plug' will be non-legal contingency fee funding.  She points to the recent ruling of Arkin v Borchard Lines & Otheres [2005] EWCA CIV 655, where the claimant was professionally funded by a company called MPC on a contingency fee, as well as the recent Civil Justice Council report that promoted contingency fees as 'a funding method of last resort'. She says: It is odd that at the point at which CFAs become "entrenched", everyone is talking about contingency fees.'

In a case like Arkin, Ms Cochrane says that the courts are weighing up principles of public policy - the plus of access t justice versus the minus of allowing champertous agreements. 

'The court seems to be saying that provided you can prove that the quality of justice has not been affected, it is more important to let people have access to litigation, 'she comments.  Kerry Underwood says the combined effect of simplified CFAs, a 'quite good' Law Society model agreement and the recent Court of Appeal judgment in Garbutt v Edwards [2005] EWCA Civ 1206, makes for a looked at simplified CFAs, prior to them coming into force, commentators were waiting on the ruling an fearing that it could be a fly in the ointment.  Thankfully for the sake of new CFAs, the appeal court judges have delivered a sympathetic ruling.

Garbutt was not a personal injury case but concerned a long-running boundary dispute that was settled with costs to be paid by the defendant.  It was contended that failure to stick to Law Society rules by allegedly not providing an estimate in accordance with practice rule 15 meant that the solicitors could not recover costs.  The argument was that since the rules have a statutory force, it would be unlawful to recover costs from the clients, Claimant lawyers feared such an argument could be used under the new regime by analogy.

The section of Lady Justice Arden,s judgment that claimant lawyers are happily going around quoting at the moment reads as follows: 'The code is there to protect the legitimate interests of the client, and the administration of justice, rather than to relieve paying parties of their obligations to pay costs which have been reasonably incurred.'

Mr Underwood flags up the date of the judgment (27 October) as being significant, as it bolsters the new system of simplified CFAs.  'I'm sure they got that decision out before the new regime came into force, because it is exactly the same code that they are dealing with that governs the new CFA regime, 'he adds.  It was a point made by Jeremy Morgan QC, of the chambers 39 Essex St who represented the defendants, in a recent article (see [2005]Gazette, 17 November, 28) when he reflected that the timing was 'not entirely accidental'.

It is 'a pretty strong message' that paying parties, such as liability insures, should not be using the code to launch technical attacks, says David Marshall, managing partner at London firm Anthony Gold and past APIL president.  The solicitor points out that the door for such challenges has been left 'slightly ajar' in extreme cases.  It was ruled that the enforcement of the code was not exclusively the business of the |Law Society but it was held that a breach could be taken into account by the courts.  Jeremy Morgan reasons that it is likely each case will be considered on its facts, but he adds that a paying party who wants to take a point on the code is 'going to face an uphill struggle'.

So where does this all leave the cost war? David Marshall points to other cases still in the Court of Appeal pipeline, such as Myatt v National Coal Board [2005] EWHC 90012 (Costs), where the CFA was found to be unenforceable because the enquires about alternative methods of funding and before-the-event insurance where inadequate.

"There are an awful lot of cases out there, sitting in people's filing cabinets where the appeal judges have got to decide on the enforceability of agreements under the old regulations.' he says.  "The war is not over until those issues are decided.'

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