Spencer v Wood & Anor (t/a Gordons Tyres, A Firm)

J U D G M E N T

1. LORD JUSTICE BROOKE: This is an appeal by the claimant against an order of Judge Cockcroft sitting with two assessors in the Leeds County Court on 8th June 2003, when he allowed in part the claimant's appeal against the order of District Judge Giles in the same court on 17th March 2003.

2. The appeal relates to the enforceability of a conditional fee agreement ("CFA"). The claimant's personal injury claim had been settled for £30,000 plus reasonable costs, to be subject to a detailed assessment if not agreed. The matter came before District Judge Giles for the detailed assessment, and he assessed Part 2 of the claimant's bill at nil. He ruled that the CFA between the claimant and his solicitors was unenforceable because it failed to comply with regulation 3(1)(b) of the Conditional Fee Agreements Regulations 2000 ("the CFA regulations").

3. The District Judge gave permission to appeal, and by the time the appeal was heard this court had delivered its judgment in Hollins v Russell [2003] EWCA Civ 718, [2003] 4 All ER 590. As a consequence of that judgment the defendant conceded on the appeal that he should pay the claimant's after-the-event premium and disbursements. Judge Cockcroft went on to dismiss the balance of the claimant's appeal.

4. On 5th November 2003 Longmore LJ granted the claimant permission to appeal as a second appeal and directed that the court should sit with an assessor. Master Hurst has filled that role and has given helpful advice to the court.

5. Regulation 3(1)(b) of the CFA regulations provides that:

"(1) A conditional fee agreement which provides for a success fee-

...

(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."

6. The CFA in this case is dated 9th January 2001. It states that the success fee is 75% of the firm's basic charges. The reasons for calculating a success fee at this level are said to be set out in Schedule 1 to the agreement. The CFA also states that the claimant is unable to recover from his opponent the part of the success fee that relates to the cost to his solicitors of postponing receipt of their charges and disbursements as set out at paragraphs (a) and (b) of Schedule 1 of the agreement. Schedule 1, which is headed "The Success Fee", provides:

"The success fee is set at 75% of basic charges and cannot be more than 100% of the basic charges.

The percentage reflects the following:

(a) the fact that if you win we will not be paid our basic charges until the end of the claim;

(b) the fact that if you lose, we will not earn anything;

(c) our assessment of the risks of your case. These include the following: ..."

There follows a list of eight items which constitute the risks referred to, of which item 6 states:

"We will not get paid until the end of a successful claim".

7. The CFA in its schedule made no reference at all to the proportion of the 75%, if any, which related to the cost to the solicitors of the postponement of the payment of their fees and expenses. The solicitors, however, disclosed their risk assessment in Mr Spencer's case. Of the 17 items on the list, eight are ticked as being applicable. A figure of 75% is written against four of them and a figure of 50% against the other four. These include the item:

"10. Deferment of costs until conclusion of case - 50%."

8. The judge understandably commented at paragraph 12 of his judgment:

"... 50% of what? Of the Success Fee? Of the Profit Costs? How is the Postponement Charge reflected in the overall Success Fee of 75%? The Risk Assessment is silent as to that, as are the Agreement and the Schedule."

He held that in these circumstances there had been a breach of regulation 3(1)(b).

9. In Hollins v Russell [2003] EWCA Civ 718 at [107], giving the judgment of the court, I said that if there had been a breach of a regulation, costs judges should ask themselves:

"Has the particular departure from a regulation ... had a materially adverse effect ... upon the protection afforded to the client...? If the answer is 'yes' the conditions have not been satisfied."

10. The judge applied this test and held that the breach had materially adverse effects upon the protection afforded to the claimant, in that he did not know which part of the 75% success fee would be recoverable from the defendant so that he would be obliged to pay it himself. In those circumstances the judge held that the CFA generally was unenforceable. In this regard he was applying the substituted section 58(1) of the Courts and Legal Services Act 1990, the terms of which are set out in paragraph 12 of the judgment in Hollins v Russell . He also applied the guidance I gave in Hollins v Russell at paragraph 102 of the judgment, when I said of the consequences of failure to satisfy the applicable conditions, which included a breach of the regulations:

"Unlike, for example, the Consumer Credit Act 1974, there is no graduated response to different kinds of breach: it is all or nothing."

11. On this second appeal Mr Buck, who appears for the claimant, does not argue that there was no breach of regulation 2(1)(b) or that the breach did not have a materially adverse effect on the protection afforded to the claimant. His main argument was set out in his grounds of appeal in these terms:

"1. The extent to which the [CFA] was unenforceable should be determined by reference to the extent to which the breach of the [CFA regulations] has had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice; and

2. It was possible to identify that 50% of the 75% success fee related to postponement of payment of fees."

12. The second proposition, however improbable given all the risks of the litigation identified in the Schedule to the CFA and the risk assessment form, was adopted as the figure most advantageous to the claimant and therefore to the defendant, and founded the claimant's case on that part of the appeal, so that it was said that the success fee amounting to 25% of the profit costs should be recoverable from the defendant as well as the whole of the profit costs.

13. Mr Buck has accepted that if he fails on the first part of his appeal, that is an end of the matter. His argument is that the punishment imposed by section 58(1) on its natural construction is disproportionate to the solicitor's crime, and that it is wholly unjust to deprive a solicitor of the ability to recover any fees at all for the services he has rendered for his client simply because there has been a material breach of one of the regulations.

14. When we asked him how we could interpret section 58(1) to achieve the results that he sought, he accepted that they could not be achieved on the wording of the section as it stood, and that he would want to have words such as "to the extent that it does not satisfy all the requirements" added to the language of section 58(1), so that the court could assess the effect of a particular breach. If its consequences were comparatively trivial, this would penalise the solicitor far less than rendering the whole agreement unenforceable. He submitted that the court should seek, in an imaginative way, to hit the right balance between the needs of the administration of justice and the needs of consumer protection. He referred us to a dictum of Lord Bingham at paragraph 8 of his speech in R (Quintavalle) v Secretary of State for Health [2003] UKHL 13, [2003] 2 WLR 692, as an encouragement to us to indulge in a purposive and imaginative interpretation of the statute, even if that were to add on a significant number of extra words.

15. In my judgment, this course is not open to us. The point that Mr Buck has so boldly taken was not considered to be of any merit by any of the distinguished advocates who argued the case of Hollins v Russell because, no doubt, they would have perceived that it had no merit at all. The words "shall be unenforceable" mean what they say. The law is well used to the concept that certain types of agreement unenforceable, and in the context of this statute Parliament decided that unless a CFA satisfied all the conditions applicable to it by virtue of section 58(1), it would not be exempt from the general rules as to the unenforceability of CFAs at common law. In my judgment, we have to interpret the statute as we find it.

16. In the context of this appeal the Law Society has written a letter to the court dated 5th February 2004, in which it tells the court that the practical effect of the decision in Hollins v Russell has been to bring much needed stability to the conditional fee regime, to secure access to justice and to the solicitors' profession, and that it has been stemming satellite litigation about costs. The Law Society would be concerned if this decision were in any way restrictively applied.

17. The fact that satellite litigation would return with a vengeance if we were to interpret section 58(1) in the way Mr Buck encourages us to apply it, would not be a substantial reason for flinching from that consequence if the words of the statute permit it. In my judgment, the words of the statute are completely clear. As interpreted by this court in Hollins v Russell , there has unquestionably been a material breach of one of the regulations and accordingly the CFA is unenforceable.

18. For these reasons, I would dismiss this appeal.

19. LORD JUSTICE JONATHAN PARKER: I agree.

20. LORD JUSTICE MAURICE KAY: I also agree.

ORDER: Appeal dismissed with costs assessed in the agreed sum of £7,500.

(Order not part of approved judgment)