Bowen v Bridgend County Borough Council

I have before me the bills and supporting papers in eleven cases. All of them concern consent orders made in housing disrepair cases in the Bridgend County Court. Requests for detailed assessment were made to Bridgend County Court in September 2003 and all of these cases were later transferred to the Supreme Court Costs Office for assessment. Accordingly, these cases are now High Court cases and any appeal from my decisions lies to a High Court Judge. I am told that terms of settlement have been agreed in 50 similar cases, that three other cases have gone to trial and were unsuccessful, and that there are approximately 210 cases still pending. It is possible that these eleven cases may be treated as informal test cases which will help parties resolve some of the remaining cases. I heard argument on these cases over two days in January 2004 and then adjourned for another two day appointment commencing 17 May 2004.

Short particulars of cases appear in the first two appendices to this judgment. All of them were funded by way of a CFA agreement claiming a 100% success fee supported by an after the event insurance policy issued by Fastrack Indemnity Ltd. The CFAs in these cases were signed by the Claimants in the months August, September or October 2001. The average period of delay from that date to the date of the letter before claim is just over 44 weeks. The period from the letter before claim to settlement is on average 28 weeks. One of the cases settled in December 2002. All of the other cases settled in the first half of 2003. In all cases the settlement terms included financial compensation varying between £750 to £3,000 (on average £1,631) plus certain repairs already done or agreed to be done, plus reasonable costs. The total of the costs claimed varies between £6,607 and £9,479 (the average being £8,012). That sum includes the success fee, the insurance premium and VAT. Excluding those matters, ie, the amount of base costs excluding VAT, varies between £3,261 and £4,590 (the average being £4,066). All of these cases were fought and concluded before the pre action protocol for housing disrepair cases was published in September 2003.

Of the many points argued before me at the two day hearing this is my judgment on six points which are common to all cases: (i) the enforceability of the CFAs, (ii) the effect in these cases of the availability of legal aid, (iii) the amount of success fee on profit costs, (iv) questions of proportionality, (v) the recoverability of the fees paid to Fastrack Litigation Services Ltd for the housing reports, video evidence and risk assessment reports and, lastly, (vi) the fees paid for surveyors’ reports.

At the hearing I gave judgment on a further point argued before me, the recoverability of VAT on invoices issued by a company or firm variously described as Street Legal UK, 4 Street Legal UK and Street Legal UK Ltd. Such fees appear in only three of the bills (Bowen, Simmons and Austin). Although all of the invoices claim VAT none of them state a VAT number. I took the view that the receiving parties should not be allowed to recover the VAT claimed on these fees.

For the time being I shall not give a final ruling on points which relate to particular cases only. In Austin it appears that the CFA was signed by the client but was not signed by the solicitor. In Farrow the CFA was signed by a Mrs Speight, described as the Claimant’s daughter: it is unclear whether Mr Farrow also signed. In Baker it would appear that the CFA and other documents were not signed by the Claimant (Patricia Baker) but by a Mr Michael Baker who is described in a housing disrepair questionnaire as the husband or partner or the Claimant. The requirement for CFAs to be signed by the client and the legal representative is set out in Regulation 5 of the Conditional Fee Agreements Regulations 2000 ("the CFA Regulations"). Nevertheless the problem in Austin was only spotted during the hearing and the problems in Farrow and Baker were spotted by me after the hearing. Therefore, before making any final rulings on these points, I will give the receiving parties concerned an opportunity for further consideration and argument.

In order to explain my decisions in these cases it is necessary to set out at length several of the documents I have seen and many of the submissions I have heard. Several of my decisions affect other decisions I make. I shall therefore set out the submissions made and my decisions thereon in separate parts of this judgment. A summary of my decisions is included in Appendix 3 to this judgment.

For the Claimants, Mr Goodbody described the funding arrangements as follows. All of the Claimants instructed PD Associates, a solicitors firm based in Liverpool. Instructions came to that firm via another company, CMS Investigations Ltd, who had already interviewed the Claimants, all of whom reside in South Wales. CMS Investigations Ltd are said to employ a range of methods by which to contact potential claimants including cold calling and local advertising. As a result of a first interview with a potential claimant, a CMS Investigations representative sends to PD Associates a questionnaire completed in manuscript and a video recording of the items of disrepair relied on. PD Associates would then sift these cases into three categories, "yes", "no" and "further information required". The cases in the "no" category are simply returned to CMS Investigations Ltd with an indication that PD Associates are not prepared to take them on. Cases in the "further information required" would be resifted after the further information had been obtained. That information might be as to the date of commencement of a particular tenancy or as to the person or persons to whom the tenancy had been granted.

Cases in the "yes" category are returned to CMS Investigations Ltd with an invitation to proceed. The CMS representative makes a second call upon the intending claimant, checks that the questionnaire answers are correct, checks that the client wishes to proceed and gives the information said to be required by Regulation 4 of the CFA Regulations. For this latter purpose a two page document is read out to the intended claimant whereupon the form is dated and both the CMS representative and the intended claimant signs it. The intended claimant also signs the CFA agreement with PD Associates, an insurance proposal to Fastrack Indemnity Ltd and an application for a disbursement funding loan with First National Bank Ltd.

The next stage is for PD Associates to receive three documents signed by the intending claimant: (i) the "oral advice and explanation"; (ii) the CFA agreement; and (iii) the insurance proposal form. They also receive a typed version of the housing disrepair questionnaire. A representative from PD Associates will then contact the intending client by telephone in order to repeat the Regulation 4 advice, to assess the risk involved and, no doubt deal with any other matters the intending client raises. In each of the cases before me the representative in question has been one or other of the two partners in the firm PD Associates, Mr Davis or Ms McGlinchey.

The telephone conversation is recorded on the file by means of a two page document the first page of which is headed "Attendance note/ conditional fee agreement compliance check list" and the second page is headed "Attendance note oral advice". The first page lists four "matters provided orally to client prior to entering into CFA": they are as follows:

Beside each of the four matters appear two columns; one is headed "Confirm (Yes/No)" and the other is headed "Matters Arising/Client’s comments".

The second page lists three "Matters to be provided orally and in writing" and also has the same two adjoining columns as appear on the first page. The three matters are listed as follows:

The time claimed in respect of each of these telephone calls normally exceeds one hour. I am told that in some cases, especially if additional questions are raised by the client, additional telephone calls are made.

If, as in all of the cases before me, the tenant wishes to proceed further the solicitors sign (or should sign) the CFA and write to the insurer to arrange inception of the insurance policy and to First National Bank Ltd who will grant a disbursement loan to the client. The solicitors also write a thank you letter to the client. That letter does not state that it encloses a copy of the CFA and neither Mr Goodbody nor Mrs McGlinchey who appeared before me were sure whether a copy, signed by the solicitor, was ever sent to the client. The thank you letter is standard form. I shall set out in full the text of the letter sent to Ms Pritchard.

I have not been shown a copy of the insurance proposal or any documents relating to the loan agreement with First National Bank Ltd. The solicitors’ letter just quoted refers to a "finance agreement [which] includes the cost of an insurance policy". I have seen an insurance policy in each case and will describe them below. I have also seen bank statements in all cases which refer to an interest rate of 1% per month which is described as 13.9% APR.

The procedure I have just described is in some respects different from the procedure set out in the witness statement of Ms McGlinchey dated 22 January 2004. After describing the first interview by the CMS Investigations representative and the yes/no/further information required sift, she states, in paragraph 11:

That evidence describes the second explanation of the Regulation 4 information being given by "the marketing company" not by the solicitor. There are discrepancies also in the dates of signing of some of the CFAs. In three cases (Farrow, Baker and Wintle) the solicitor is shown as signing on the same date as the client. Ms McGlinchey invites me to deduce from this that at the second interview by the CMS Investigation representative, the representative telephoned PD Associates and so the Regulation 4 information was given by the CMS representative and then by the solicitor, both on the same day. That explanation works if one further assumes that, when the solicitor later received the CFA signed by the client, she signed it and then backdated it to the same date as the date of the telephone conversation.

I note that in at least five other bills (Jones, Simmons, Owen, Pritchard and Austin) the costs draftsman always claims costs from the date of the client signing the agreement not the (potentially later) dates of the solicitor’s signature.

More date problems arise in another case, Bowen. The client’s date of signature of the CFA is shown as 20 September 2001. That is consistent with the date of the two questionnaires (which are dated 5 September and 20 September). However the solicitor’s date of signing is shown as 20 August 2001 a date which also appears on the two page document recording the telephone conversation between solicitor and client. Other documents in the papers supporting this file lead me to assume that, in fact, the solicitor signed the CFA and the two page record of the telephone conversation on 20 November 2001 but incorrectly backdated them to a date one month before the client’s date of signature.

The conclusions I draw from the discrepancies between the case as explained to me by Mr Goodbody, the case as explained in Ms McGlinchey’s witness statement and the varying dates of documents I have mentioned are as follows. The true position is as Mr Goodbody described it. Ms McGlinchey’s witness statement is inaccurate to the extent that it disagrees with Mr Goodbody’s account. In cases in which the solicitor’s telephone interview takes place before the solicitor receives the CFA signed by the client, the costs of the telephone interview are not recoverable. There is nothing in the CFA to suggest that it can operate retrospectively. On a few occasions the solicitors have been willing to backdate documents incorrectly. On more occasions the costs draftsman has been willing to backdate the claim for costs incorrectly. On one occasion (in Bowen) Mr Davis has backdated a document to an impossible date. 20 August 2001 is more than two weeks before the date shown on the manuscript copy of the housing disrepair questionnaire which is said to have been prepared by the CMS Investigations representative on first interviewing Ms Bowen.

In each of the cases before me the same form of CFA was used. It is heavily based on the Law Society model and indeed the last four sides comprise the standard Law Society conditions. I shall set out the full text below save that, where clauses are identical to clauses in the Law Society model, I shall reproduce the heading only, not the full text.

Several of the clauses of the CFA agreement call for comment. Clause D (basic costs) sets out hourly rates for fee earners which are different from the hourly rates set out in the thank you letter I have already quoted.

Clause E (success fee) specifies the success fee in all cases as 100%. I shall return to this point when dealing with Schedule 1 to the agreement.

Clause H (your relationship with Legal Direct Ltd) introduces to me a third corporate name which relates to the insurance in these cases. The proposal to take out a policy is apparently made with Legal Direct Ltd. The policy is administered by Fastrack Indemnity Ltd. The representative who first shows this draft agreement and other documents to the intending claimant is employed by CMS Investigations Ltd. In all of the cases before me clause H of the CFA describes the premium as being for the sum of £729.75 in fact, a premium of this size was paid only in three cases (Jones, Austin and Wintle). In four other cases the insurance policy stipulated a higher premium all of which was paid (Simmons, Baker, Pritchard and Mellish). In the remaining four cases the insurance policy stipulated for a premium of £729.75 but only £519.75 was paid (Bowen, Owen, Farrow and Pace).

The seven policies which stipulate for a maximum of £729.75 describe the premium as payable in two instalments: a first instalment of £519.75 "payable as soon as the legal representative agrees to represent the insured in the legal action and proposal accepted by underwriters" and the second instalment of £210 is "payable at the stage when the solicitor is authorised to issue proceedings". It therefore seems appropriate to infer that, in the last four cases I mentioned, either the solicitor failed to obtain authority to issue proceedings or, if authority was obtained, the underwriters waived payment of the second instalment. In the four cases I mentioned as having a higher premium, the premium is payable (and was paid) in one instalment immediately upon completion of the CFA agreement.

In clause J (other points) the opening words ("Immediately before you sign this agreement") make clear that the "verbal" explanation there referred to is the explanation given by the CMS Investigations representative at the second interview, not the explanation recorded as given later by the solicitor by telephone.

There are four comments I wish to make about schedule 1 to the agreement. First the form of CFA used leaves space for a success fee percentage to be inserted in Schedule 1 even though Clause E, as printed, specifies it to be 100%. Secondly this part of the schedule was left blank in five of the cases (Bowen, Owen, Pritchard, Austin and Pace). In another five cases a figure has been inked in, using the same colour ink as the solicitor who countersigned the agreement (Jones, Simmons, Farrow, Baker and Wintle). In the remaining case (Mellish) the figure 90% has been typed into schedule 1 even though in that case, as in all the other cases, clause E shows a success fee percentage of 100%.

The third comment I wish to make about schedule 1 is the provision it makes concerning the fee deferment element of the success fee quoted. Clause E of the agreement states that the client "cannot recover from your opponent the part of the success fee that relates to the cost to us of postponing receipt of our charges and disbursements (as set out at paragraphs (a) and (b) at schedule 1). This part of the success fee remains payable by you." However, it is not possible to tell from schedule 1 what part of the success fee is attributable to paragraphs (a) and (b). This aspect of schedule 1 contrasts substantially with schedule 1 to the Law Society model. The Law Society model is as follows:

My fourth comment concerning schedule 1 relates to certain forms of risk assessment I have seen in seven of the cases before me. These are headed "Landlord and tenant disrepair claims risk assessment", give short details of the client and tenancy and then list 19 factors said to have been considered when assessing the risk. Beside each factor is a box in which either the answer yes or no can be given. If the answer yes is given there is another box into which may be recorded the percentage success fee appropriate because of this factor. On all forms the boxes beside the first three factors are pre printed with percentages totalling 40% (Bowen, Owen, Farrow and Pace) or 50% (Jones, Austin and Wintle). On all forms six or more of the other boxes are completed in manuscript with values bringing the total risk assessment value to 100% or more. That this was likely to happen appears to be indicated by a sentence pre printed towards the end of the form which states:

Five of the seven forms contain passages which appear similar to schedule 1 of the CFA but which are in fact substantially different. These passages are as follows:

The division of success fee into 40% and 60% elements in these five cases is not, upon examination, a division between the fee deferment element and the risk element. Factors (a) and (b) of the risk assessment form are different from the factors (a) and (b) in schedule 1 of the CFA. In my judgment the final passages which I have quoted are for all practical purposes meaningless. In two cases (Austin and Wintle) none of these final passages are set out save one line "(d) any other appropriate matters". Lines (a) (b) and (c) and the other sentences following the 19^th factor are all omitted.

I mention these risk assessment forms in case it might be argued that they throw some light upon the amount of the fee deferment element which, the Regulations require, must be specified in the CFA. In fact, upon examination, these forms throw no such light. In any case, I am not told at what stage in the procedure this form is completed. In three cases the fee earner indicated is the same fee earner who signed, or should have signed, the CFA with that client (Jones, Austin and Wintle). In the other four cases the fee earner indicated is a junior fee earner, either Mr Edwards or Mr Humphries, even though the CFA with that client was signed either by Mr Davis (Bowen, Owen and Pace) or Ms McGlinchey (Farrow).

In each case the insurance document issued by Fastrack Indemnity Ltd gives brief details of the insured, the defendant and the type of action (housing disrepair). Most of them specify the same premium £729.75:

In four cases a higher premium is specified £834.75 (Simmons, Pritchard and Mellish) and £939.75 (Baker). The policies in these cases also differ as to the provision they make concerning disbursement funding (see below). In these four cases the premium is payable in one instalment only

In each of the cases the insurance does not cover "any appeal" and ceases if "the legal action moves outside the fast-track system into "multi-track" or any other higher legal system". Subject to that the policy limits are £45,000 in respect of adverse orders for costs and £5,000 for disbursements incurred by the insured’s solicitor which fall within the policy. It appears that the insured never has cover for own disbursements where the action is settled except where the settlement is in favour of the defendant and is approved by the insurer or is a walk away settlement. I infer this from the clause entitled the "insuring clause" which states as follows:

The term "approved settlement" is defined to be an agreement to which the insurer has given prior written consent and under which the insured agrees to pay the defendant’s costs and bear "its" own costs.

Each of the policies contains an exclusion stating that the insurer shall not be liable for

In the four cases in which a higher premium is paid the insurance also covers interest due to the "funder" if the insured fails to establish any liability or obtain any favourable settlement. "Funder" is defined as "the entity providing own disbursement funding to the insured, normally expected to be a bank or other financial institution". In the other seven policies this provision about interest is omitted and the term funder is not defined. However, in these seven other cases, the policy is subject to an endorsement in the following terms:

I infer from the endorsement I have just quoted that, in seven of the cases before me, First National Bank Ltd will have a right of resort against the underwriters, up to £5,000, if these seven claimants fail to pay off their loan accounts. Thus, in those circumstances, First National Bank Ltd have better insurance cover than the claimants themselves do. If that cover leads to a pay out the underwriters may have rights of resort against the claimants "or the appointed representative". I have not as yet seen or been told of any contractual documents giving the underwriters a right of resort against PD Associates.

In one respect the insurance cover under the policies in these cases is better than the cover under other policies I have seen. Condition 2 provides what shall happen if a payment into court is made, the solicitor gives written confirmation that the prospects of beating it are good, the case later goes to trial but the payment into court is not beaten. In such a case the claimant will have cover in respect of adverse orders for costs and own disbursements incurred since the payment in and the insurer or underwriter will not deduct from this cover an amount equal to the amount of damages in court.

Regulation 4 of the CFA Regulations imposed upon PD Associates in these cases an obligation to inform the claimants about certain matters and, if they required any further explanation, advice or information about those matters to provide such as might reasonably be required. The matters about which information must be given are listed in Regulation 4(2) in five paragraphs lettered (a) to (e). At the hearing I heard argument as to two of them, (c) and (d) which I now set out.

Regulation 4(5) requires the information in paragraphs (c) (d) to be given orally whether or not it is also given in writing.

Although I did not hear argument as to it at the hearing I also wish to set out parts of Regulation 3 which is entitled "Requirements for contents of conditional fee agreements providing for success fees". Regulation 3(1) provides as follows:

In Hollins v Russell [2003] EWCA Civ 718 the Court of Appeal gave comprehensive guidance as to the consequences of non compliance with the CFA Regulations and also as to the test to be applied when determining whether there has been substantial compliance with those conditions. Paragraph 107 of the judgment of the court states as follows:

For the Defendant Mr Hogan submitted that PD Associates had failed to comply with Regulations 4(2)(c) and 4(2)(d) and that those failures had a materially adverse effect not only upon the protection afforded to the Claimants but also upon the proper administration of justice. Because the Claimants had not adduced evidence as to what was said orally by the CMS representative who attended the second interview in each case or by the solicitor said to have conducted a telephone interview in each case, I should infer that the information which was then supplied would have been similar to the information which appeared in the written evidence before me. I have already set out the full text of the CFA agreements and the full text of a "thank you" letter sent to each Claimant after the CFA was concluded.

It is convenient here to set out extracts from the document used by the CMS representative at his or her second interview with each claimant and which is signed and dated by the CMS representative and by the intending client.

As to Regulation 4(2)(c) (whether the solicitor considers the client has existing insurance) Mr Hogan invited me to infer that, rather than giving advice or information, both the CMS representative and the solicitor had failed or refused to give advice: reliance was placed on paragraphs (c) (e) and (f) of the "oral advice and explanation" and on the following clauses of the CFA agreement, H, J(c), J(d), J(e), J(f) and Schedule 2. (These passages of the CFA are set out in paragraph 19, above.)

Mr Hogan invites me to draw similar inferences with regard to Regulation 4(2)(d) (the requirement to consider other methods of financing the costs). In respect of the information given by the CMS representative reliance was placed upon the oral advice and explanation, paras (d) (e) and (f). In relation to the solicitor reliance was placed upon the following clauses of the CFA agreement, H, J(c), J(d), J(e) and J(f). He also drew my attention to what was said about legal aid in the "thank you" letter I have already set out, the relevant words being:

As to the materially adverse effect which Mr Hogan says these failures have had upon the claimants, he drew my attention to the financial disadvantage to each claimant. The amounts of interest they have paid on their loan accounts and the sums if any remaining outstanding after receipt of damages in each case are set out in the diagram in Appendix 2 to this judgment.

On the materially adverse effect he says these failures have had upon the proper administration of justice Mr Hogan drew my attention to the total amount of costs claimed in each of these cases (see Appendix 1 to this judgment). In his submission the Fastrack scheme recommended by the solicitors to their clients was not only financially disadvantageous to the claimants, it was also financially disadvantageous to the defendant. There is, he says, a pattern in each of the cases under which a great deal of expense is incurred and time spent even before the letter before claim is written.

In support of his contention that legal aid was available and should have been used for these claimants, Mr Hogan produced to me a copy of a judgment given by His Honour Judge Jones in January 2004 in cases which are not dissimilar from these cases: Wilton v Rhondda Cynon Taff County Borough Council; Jenkins v Rhondda Cynon Taff County Borough Council. That judgment relates to an appeal against certain case management directions made by the District Judge in those cases. Paragraph 34 of the judgment states as follows:

Other features of the Fastrack scheme which Mr Hogan sought to criticise were the levels of muddle and mistakes indicated in the contractual terms (see in particular clauses H, I, J(c) and J(d). He also asserts that, just as the solicitor and his representative appear to pre-judge the suitability of the scheme, they also pre-judge the appropriate success fee to charge: in the CFAs in all cases and in the risk assessment form in seven cases the success fee of 100% is pre printed.

For the Claimants, Mr Goodbody started by suggesting that the Defendant’s complaints in these cases were simply motivated by an unwillingness to pay the Claimant’s reasonable costs. He drew my attention to paragraph 224 of the judgment in Hollins v Russell, a paragraph which says the court should be watchful when considering allegations as to breach of Regulations and should not allow the Regulations to be used as a means of continuing the bitter trench warfare which has recently broken out about costs. He confirms that the Regulation 4 advice was given to each Claimant on two occasions before the CFA was concluded, once by the CMS representative and then again by a solicitor. He warned me against treating the CMS oral advice and explanation form as if it were a script. However that document and the attendance record of the telephone interview were both good evidence that the Regulation 4 advice had been given and had been given properly. In his submission I should be slow to go behind these documents. On behalf of Ms McGlinchey, who was sitting next to him, he stated that she had on occasions advised intending claimants to use legal aid rather than this scheme. In fact of course most claimants had only become claimants because of the approach made by the CMS representative and, therefore, inertia often kept them within the Fastrack scheme. Once within the umbrella of its arrangements most clients were content to stay within it.

Mr Goodbody did not seek to excuse or justify the mistakes in the CFA suggesting that the client was already bound by insurance. Instead he sought to explain those errors by saying that this part of the documentation had been cribbed from another scheme (the Accident Group scheme). He counselled me not to be over picky as to compliance with the requirement to give written advice if satisfied that proper oral advice had been given and accepted. He produced to me (but not to Mr Hogan) a document which I am told is used in the solicitors’ office by way of an aid memoire when conducting a telephone interview with a client. This document poses questions such as "do you have legal expenses insurance?" and "are you a member of a trade union". It also invites the fee earner to describe the "pay as you go" system and "legal aid". I shall save to the next point his detailed comments as to availability and suitability of legal aid.

The Defendant relies on the availability of legal aid in these cases in order to challenge the recovery of the ATE premium. The Defendant also relies on this point in order to challenge the recovery of a success fee on profit costs even if the CFA is otherwise enforceable.

On the legal aid point and also on the need to consider whether clients have existing insurance cover, Mr Hogan drew my attention to the Solicitors Practice Rule 15 (solicitors shall … give information about costs and other matters … in accordance with [the] Solicitor’s Costs Information and Client Care Code …) and paragraph 4(j) of the Code which is as follows:

In each of the cases before me it was agreed that the financial circumstances of the Claimants made them eligible for legal aid. In those circumstances Mr Hogan submitted that the burden was upon the Claimants to show that their decision not to apply for legal aid was reasonable. Reliance was placed upon the Court of Appeal decision in Sarwar v Alam [2002] 1 WLR 125. That case held that, in modest road traffic accident cases, if an otherwise suitable alternative method of funding was available (in that case it was BTE insurance cover) a claimant will normally be expected to use it. Paragraph 41 of the judgment in that case is as follows:

The Claimants’ case was that each Claimant had considered the availability of legal aid not once but twice before the CFA was signed by the solicitor. The first occasion was at the second interview with the CMS Investigations representative. The second occasion was in the telephone interview conducted by the solicitor. I was told that, in fact, some clients did decide to use the legal aid route and, of course, were left to do so. I was told that no-one was pushed or steered into the Fastrack scheme. In Mr Goodbody’s submission the Fastrack scheme enjoyed the following advantages over legal aid:

Mr Goodbody also gave an explanation of the statement on legal aid which appears in the thank you letter each Claimant received after the CFA was completed (set out in paragraph 46, above). I was told that the recent changes referred to were as follows: (i) changes in financial limits, (ii) the imposition of the cost/benefit analysis, (iii) the introduction of the system of franchising so that local solicitors without a franchise may be unable to help and local solicitors with a franchise may be too busy to do so, and (iv) the availability of CFAs. Mr Goodbody accepted that there was an element of non sequitur in the completion of the statement on legal aid rolled into advice in favour of legal expenses insurance.

Mr Goodbody also sought to justify as reasonable some of the grounds upon which the Claimants may have chosen the Fastrack scheme rather than legal aid funding even though that scheme was more expensive for Defendants. PD Associates would visit Bridgend occasionally and call upon clients. Also some of the Claimants were known to each other therefore had good cause to be satisfied with the efficiency of the firm and to be comfortable with them. The Claimants might well be unfamiliar and less comfortable with other solicitors.

For the defence, Mr Hogan submitted that the claim for a 100% success fee made in all of the cases (including Mellish) was excessive and unreasonable. The fact that the figure 100% appeared pre printed in most although not all of the documents (see Mellish) indicated that no true risk assessment had been made in these cases. In his submission I should allow no more than 5%.

For the Claimants Mr Goodbody conceded that 100% was difficult to justify. Of 53 cases concluded so far 50 had been successful. However, there were many other cases in which the solicitors had undertaken work and investigated claims without commencing them. Also it was likely that the solicitor’s base fees in the three failed cases would be very much larger than the base fees in any three successful cases. It was accepted that possession of a housing disrepair questionnaire which had been checked was of advantage and that, in some cases, the possession of video evidence might also be of help. However, in his submission, the primary risk for the solicitors in these cases was that the tenants may not have given prior notice of disrepair to their landlords. Other risks were the danger that the landlord might undertake repairs. Such repairs might derail a case which had not begun. Also they might cause a case to be allocated to the small claims track thereby preventing the client obtaining substantial recovery of costs from the landlord. I was told that, in practice, PD Associates do not make deductions from their client’s compensation.

Mr Goodbody invited me to assess the risk in these cases as approximately 66%. This would justify a success fee of 50%. In other words if three similar cases finished at a similar point, two would be successful, one would fail and therefore the two successful cases would have to fund the unsuccessful case. I was told that 50% was by no means the maximum success fee reasonably allowable: success fees of 67% had sometimes been obtained in cases in Yorkshire.

It was agreed by both sides that, when comparing costs incurred and benefit gained, I should take into account base costs only, excluding VAT (as to this, see Giambrone v JMC Holidays Ltd [2003] 1 All ER 982). It was also agreed by both sides that, in each of the cases before me, the base costs excluding VAT which were incurred before the letter before claim was sent exceeded £1,000.

Counsel did not agree upon how I should value the benefit gained in these cases. For the Claimants, Mr Goodbody invited me to take into account the estimated repair costs, including VAT, set out in the particulars of claim in each of these cases. These vary between £1,020 and £6,547, the average being £2,491. I must also, of course, take into account the compensation agreed (on average £1,631, see para 2 above).

For the Defendant, Mr Hogan suggested I pay little regard to the cost of repair element. In his submission these repairs would be done by the Defendants "in house". Thus the commercial costs thereof and the notional VAT on such costs were wholly irrelevant.

Fastrack Litigation Services Ltd is the fourth corporate name I have been given in relation to the insurance and investigation services supplied to the claimants in these cases. In each of them an invoice has been issued by Fastrack Litigation Services Ltd claiming £405.38 (including VAT) for a housing report and a further £70.50 (including VAT) for the provision of video evidence. For the Claimants Mr Goodbody said these fees related to the introductory work done by the CMS Investigations representative. He argued that they were recoverable from the Defendant in each case because they amounted to investigation fees, the need for which was anticipated by the contractual documentation: reliance was placed on the CFA, clause I (your obligations to repay your loan) and clause 3(f) of the Law Society Conditions which states as follows:

Mr Goodbody described the video evidence as having a long term value, for cases which later went to trial. It was not used by the surveyors when preparing their reports (see below) nor by the solicitor when completing the allocation questionnaire.

In each of the cases before me fees of £246.75 (including VAT) under a second invoice issued by Fastrack Litigation Services Ltd have been claimed in respect of a "risk assessment report". For the Claimants, Mr Goodbody was unable to identify the report in question. Since the item could not be described as an investigation fee relevant to the litigation Mr Goodbody did not seek to justify this item in any of the bills.

In each of the cases a surveyor’s report was obtained before the date of the letter before claim. In two of the cases the report date is within one month of the date of the letter before claim (Pritchard and Austin). In most cases the report is dated several months before the date of the letter before claim. In nine of the cases the report was made by John C Batterton & Associates of Wavertree, Liverpool. In seven cases the fee charged is £293.75 (Bowen, Farrow, Pritchard, Mellish, Austin, Pace, Wintle). In two cases the surveyors charged £411.25 (Jones and Owen). In Baker the solicitors instructed Stevens Scanlan of Manchester to prepare a report which they did for a fee of £411.75. In Simmons the solicitors instructed Street Legal to obtain a surveyor’s report and they did so via a company or person called W T Hills. I have not seen W T Hills’ invoice but Street Legal’s invoice is for the total sum of £511.13. The Simmons correspondence file contains a copy letter dated 23 January 2003 addressed to Hills Chartered Quantity Surveyor of 2 Cathedral Road, Cardiff. It refers to seven reports prepared for PD Associates’ clients and asks the surveyor to alter the reports to show that they were prepared for the benefit of PD Associates rather than for the benefit of Street Legal.

For the Claimants, Mr Goodbody explained that different surveyors had been instructed in two cases because Battertons at that time had too many cases to handle. He could give me no information as to how the fees in those two cases were fixed and, indeed, no such information appears in the correspondence files.

At the hearing I did not notice that on two occasions (Jones and Owen) Battertons had charged more than their usual fee of £293.75. In Jones, although a fee of £411.25 was paid (in July 2002) there is no explanation on the file as to why a larger sum was appropriate in this case. In Owen the papers include two copies of invoices numbered 94 and dated 16 April 2002. One is for the sum of £293.75 and the other is for the sum of £411.25. On the bank statement on the file (dated 17 January 2003) the sum of £295.75 (sic) is shown as paid in January 2002 and a second payment of £411.25 (in May 2002) is marked "over payment". The file contains a copy letter from PD Associates to First National Bank dated 9 January 2003 which refers to two over payments in the Owen file totalling £841.25 and enclosing the solicitors’ cheque in settlement. From the papers which I have seen the benefit of that credit has not yet reached Mr Owen’s loan account with First National Bank Ltd.

For the Defendant, Mr Hogan criticised the sums spent on surveyors’ fees as unnecessary and disproportionate. He submitted that although the pre action protocol for housing disrepair does not apply to these cases, the Practice Direction on protocols does apply. I set out below relevant extracts from that Practice Direction:

I am required to take into account compliance or otherwise with the Practice Direction on protocols when assessing costs. Set out below is an extract from CPR 44.5(3). CPR 44.5 is entitled "Factors to be taken into account in deciding the amount of costs".

Mr Hogan submits that, in these cases, PD Associates did behave as if litigation was inevitable. In all of the cases except one (Austin) the period from CFA to letter before claim is longer than the period from letter before claim to settlement. The details appear in Appendix 2 to this judgment. In three of the letters before claim very detailed descriptions of the defects and reporting dates were given (Owen, Pritchard and Austin). In all of the other cases a document described as a "Scott schedule" was enclosed. All of the letters stated a deadline within which the Defendant was to admit liability and/or make satisfactory proposals otherwise proceedings would be issued. In all but two of the cases (Bowen and Pace) the deadline specified was 14 days. In Bowen proceedings were in fact issued before the deadline expired.

As to the surveyor’s fees incurred and also on the topic of proportionality generally, Mr Hogan drew my attention to several passages in the judgment of His Honour Judge Jones in Wilton v Rhondda Cynon Taff County Borough Council; Jenkins v Rhondda Cynon Taff County Borough Council, paragraphs 94 to 104. Paragraph 103 of that judgment is as follows:

For the Claimants, Mr Goodbody submitted that the fees paid for experts were neither unnecessary nor disproportionate. Taking an hourly rate of £125, the fee included in most of the cases would cover only two hours work without making any allowance for extra costs of typing or producing photographs. Allowing one hour for local travel, the other hour would represent time spent visiting the premises and then preparing and correcting the report later. Mr Goodbody criticised the defendant for not revealing the amount of fees charged by the Defendant’s surveyor in these cases. In Mr Goodbody’s submission the surveyor’s report was necessary at an early stage in order to assist the solicitors complete the allocation questionnaire. Housing disrepair cases will be allocated to the small claims track unless either the amount of compensation reasonably sought exceeds £1,000 or unless the value of the repairs specified exceed £1,000.

In my judgment PD Associates and their agents have failed to comply with the obligations placed upon them by Regulation 4(2)(c) (whether the solicitor considers the client has existing insurance). Paragraph (d) of the oral advice and explanation (see para 37 above) wrongly places on the client the responsibility for considering the insurance questions. In the CFA, which is signed by the client on the same date that he signs the oral advice and explanation form, clause H falsely suggests that the client is already bound to take out insurance with Fastrack Indemnity Ltd. Because of that clause J(e) wrongly states that the solicitors or their agents are "unable to discuss … other legal expenses policies" and Schedule 2 of the CFA suggests the possibility of the client seeking "independent legal advice in this regard". Mr Goodbody is correct to say that I should consider what oral advice was given to the client and, if I find that sufficient, I should pay little heed to the incorrect written advice that was supplied. However, the Claimants put before me no evidence which suggests that the oral advice given is likely to have been any better than the written information supplied. Indeed, the fact that a record of the oral advice given by the CMS representative is, in each case, signed and dated indicates to me the importance which I should attach to it.

In my judgment PD Associates or their agents have also failed to comply with the obligations placed upon them by Regulation 4(2)(d) (the requirement to consider other methods of financing the costs). The mistakes and failings in the written documents which I have already described in relation to Regulation 4(2)(c) also apply here. The Claimants give me no reason to think that the CMS representative would have given a tolerable explanation of the availability of legal aid to these Claimants. It is, theoretically, possible that the solicitor may have given such an explanation in the telephone interview despite the mistakes made in the CFA and in the thank you letter reference to legal aid. The requirement to give impartial advice on legal expenses insurance and on legal aid where relevant is or ought to be obvious to every solicitor given its inclusion in the Solicitor’s Costs Information and Client Care Code. Had there not been a strong pointer to the contrary I would have presumed that the solicitors had given proper advice.

I do not criticise PD Associates for their use of checklist attendance notes of their telephone interviews. As a general rule it is perfectly acceptable and appropriate for a Claimant’s solicitor to give evidence as to the oral advice given by producing check lists and tick box forms which he or she completed at the time the advice was given. However, the interview records produced in these cases are far too brief and too generalised to be of any real assistance to me. In these eleven cases, there is nothing in the attendance records of the telephone interviews which assists PD Associates to prove that proper advice was given. The words "legal aid" nowhere appear in those records. In nine of the cases no matters arising are recorded. In the remaining two cases brief notes are recorded concerning health problems (Jones) or concerning the client’s desire to speak to a relative (Farrow).

I have come to the conclusion that, the most powerful indication as to whether or not PD Associates provided the information required is the fact that all of these Claimants chose to rely on the Fastrack scheme rather than the legal aid scheme. In my judgment all of them should have been told to seek legal aid. I shall set out my reasons for this conclusion in my decision on the next issue. There does not appear to me to be any likely reason why, had they not been given good advice, they would not have taken it.

In my judgment PD Associates have also failed to comply with the obligations placed upon them by Regulation 3(1)(b) (the requirement to specify the fee deferment element in the success fee). Neither the form of CFA nor the risk assessment forms produced in seven of the cases enable the client to make any sense of the third paragraph in clause E of the contract.

I am prepared to accept that the failure to comply with Regulation 4(2)(c) would not by itself produce a materially adverse effect upon the protection afforded to the Claimants in these cases. The possibility that they already had before the event cover seems to me minimal. However, in my judgment the failure to comply with Regulation 4(2)(d) has undoubtedly had a materially adverse effect upon the protection afforded to these clients. It has brought them into the Fastrack scheme which, in ways I shall explain hereafter, has exposed them to unreasonably high and disproportionate expenses the costs of which are not covered by the insurance obtained. That cost has been arranged by means of a loan account charging interest at 13.9% per annum. The unrecovered expenses and the interest payable under the loan are likely to consume most if not all the monetary compensation these Claimants obtained.

Given my decision as to Regulation 4(2)(d) it is not strictly necessary for me to express any decision on whether the breach of Regulation 3(1)(b) has had a materially adverse effect upon the Claimant’s protection. I see the force of an argument that its effect is theoretical only: the other disadvantages of the Fastrack scheme are likely to dissipate most, if not all, of any financial compensation each Claimant obtains and their other financial resources are such as to make it unlikely that the solicitors would ever pursue them for any part of the success fee which they had not recovered from the Defendant.

In my judgment the failure to comply with Regulations 4(2)(c) or 4(2)(d) have had a materially adverse effect upon the proper administration of justice. By their failures the solicitors have steered these Claimants into litigation which has caused them and the Defendant to incur unnecessary or unreasonable expenses. The solicitors knew or should have known that this scheme would be disadvantageous for their clients. The solicitors knew or should have known that litigation under this scheme was run in a disproportionate way. The solicitors knew or should have known that some of the costs they claim in successful cases are improper. I have in mind here in particular profit costs claimed by way of backdating, the success fee on profit costs, the fees paid to Fastrack Litigation Services Ltd and surveyors’ fees to the extent that they exceed £293.75.

The consequence of my decision that the CFAs are unenforceable is that the Defendant’s maximum liability for costs in these cases is in respect of paid disbursements and any costs of assessment allowed.

The proper test for me to apply here is whether the Claimants acted reasonably in instructing a solicitor on CFA terms with insurance rather than instructing a legal aid solicitor. If their choice of funding was reasonable, the reasonable costs they incur would be recoverable even if it would lead to extra expense for the Defendant. I should not approach this topic by considering whether a legally aided solicitor could reasonably have conducted these cases (cf R v Dudley Magistrates Court ex p. Power City Stores Ltd (1990) 154 J.P.654, DC). In my judgment the choice made by these Claimants to participate in the Fastrack scheme was not reasonable. The advantages which Mr Goodbody claimed for the scheme are not made out. PD Associates have not shown themselves to be adept at conducting housing disrepair cases. The Claimants have not obtained a swifter solution to their disrepair problems than the legal aid system would have permitted. The form filling and reporting requirements under the Fastrack scheme are similar to those in the legal aid scheme. I have in mind here various parts of the ATE policy including item VII, the definition of approved settlements, exclusion H and conditions 1 and 2. The avoidance of having to make legal aid contributions is academic given the financial resources of these Claimants. The last advantage suggested, insurance protection of use particularly where a claimant fails to beat a payment into court, is negated by the fact that unrecovered items of costs and unrecovered interest on the disbursement loan will dissipate most if not all of any monetary compensation even if no payments into court are made. For these and other reasons I have already stated that these Claimants should have been advised to rely upon legal aid.

I have not put into the scales against these Claimants the views as to availability of legal aid expressed by His Honour Judge Jones in the Rhondda Cynon Taff County Borough Council cases cited to me. I will put into the scales in their favour the fear often expressed recently as to there being legal aid deserts in certain parts of the country. I do not accept that those fears would lead any reasonable claimant, properly advised, to accept instead the heavy disadvantages of the Fastrack scheme.

I am persuaded that Mr Hogan’s submission that I should apply the decision in Sarwar v Alam [2002] 1 WLR 125, by analogy, is correct. I am also influenced by paragraphs 56 and 57 of that judgment which I now set out:

Having heard argument as to it, it is appropriate for me to state my decision as to the quantum of the success fee in these cases in case it transpires that I am wrong to say the CFAs in these cases are unenforceable.

The assessment of the success fee in a particular case is a value judgment about which reasonable people may reasonably disagree. I accept that there is little guidance in the statutory materials or, in relation to housing disrepair cases, in case law, which simplifies the task. However, that cannot be used to justify the course which PD Associates chose to adopt in these cases, ie, to make no real risk assessment at all but instead to claim the maximum 100%, a figure which they could not reasonably seek to justify at the hearing before me.

The 5% figure suggested by Mr Hogan would be correct if I should apply by analogy the ruling made in Halloran v Delaney [2003] 1 WLR 28: in RTA cases which are as simple as can be and which settle pre issue, the court should award a success fee on the basis that it would be unreasonable to agree more than a two step success fee in which the first step was 5%. However I do not think it right to apply that ruling by analogy. In The Claims Direct Test Cases [2003] 4 All ER 508 it was explained that there is no requirement to agree a two step success fee in any case which is not the simplest. Also, these cases did not settle pre issue. Although Mr Hogan makes the point that the litigation was conducted so aggressively as to leave little time for pre issue settlements, I observe that, in fact, defences were filed in six of these cases (Bowen, Simmons, Baker, Pritchard, Mellish and Pace).

I take judicial notice of the statistics set out in the Fenn & Rickman Report published on the Civil Justice Council website. This indicates that an appropriate single step success fee for all RTA cases (including the most difficult as well as the most simple) would be 14.25%. On the basis of this report the Civil Procedure Rule Committee is now in the process of implementing rules under which, following mediation between interested bodies, the success fee in RTA cases will be fixed at 100% for cases which reach trial reducing to 12½% in all other RTA cases. The figures just quoted apply to profit costs only. A slightly different system is proposed for counsel’s fees.

There is no statistical or other information available to me which indicates whether housing disrepair cases are more or less risky than RTA cases. Mr Goodbody submitted that the primary risk for solicitors in these cases is the risk that the tenant may not have given prior notice of the disrepair to their landlords. In my judgment that risk must be minimised in these cases given that, on two occasions, a CMS representative has called upon the Claimant and compiled or reviewed a housing disrepair questionnaire which specifically deals with this point. Nevertheless, in the absence of any other information which is particular to these cases, my expectation is they are likely to be more risky than RTA cases. Putting myself in the position of the solicitors at the time these agreements were made (in August to October 2001) the reasonable sum to specify by way of the risk element of a single step success fee then would exceed the maximum figure suggested for RTA cases in Callery v Gray [2001] 1 WLR 2112, a case which was widely reported earlier that year. That figure was 20%.

In all the circumstances the single step success fee I would allow in respect of the risk element only in these cases is 25%.

I am in no doubt that, in the circumstances of these cases, it was plainly disproportionate to incur base costs which, excluding VAT, exceed £4,000 on average. I am also of the view that it was unreasonable to incur base costs exceeding £1,000 excluding VAT before sending off a letter before claim. In valuing the benefit gained I would take into account the costs of repairs including notional VAT thereon. Had proportionality been the only preliminary decision I had to make I would now proceed to assess the bills applying the dual test of necessity as well as reasonableness to all items. In fact of course this is not the only preliminary decision I must make. On the basis of the other decisions included in this judgment the question of proportionality has become academic. I have already disallowed all profit costs and unpaid disbursements (eg counsel’s fees and costs draftsman’s fees). I am about to disallow certain paid disbursements (see below). According to my arithmetic the costs which may be allowed in any of the eleven bills before me cannot now exceed £1,000 plus the costs of the detailed assessment. The largest remaining bill is in Bowen (£853.75 including court fees of £430, Street Legal’s fee of £130 and a surveyor’s fee). The smallest bill is in Jones (£323.75 including a court fee of £30 and a surveyor’s fee). That I should take these reduced figures as my starting point for the overall proportionality test is consistent with the decision made by Morland J in Giambrone v JMC Holidays Ltd [2003] 1 All ER 982 (see in particular paragraphs [39], [40] and [46]).

Although the linkage between Fastrack Litigation Services Ltd and CMS Investigation Ltd has not been shown to me I accept that, for the purposes of this judgment, the fee of £475.88 (including VAT) for a housing report and video evidence relates to work done by the CMS representatives at one or both of the interviews he or she conducted. In my judgment the Claimants are not contractually bound to pay these fees. This work would have been done whether or not the Claimants had decided to proceed with their claims. There is not the glimmer of a suggestion in any of the documents that I have seen that the Claimants were ever told of these expenses or ever agreed that their liability to pay fees would be retrospective. In his arguments in support of these fees Mr Goodbody dwelt upon their value in the progress of the claims. In doing so he failed to address what is always the preliminary issue in any detailed assessment, the indemnity principle. I must first look at the cost of this work to the Claimants. Questions of value can arise only where there is some cost.

Points similar to the points now before me also arose in Master Hurst’s decisions in The Claims Direct Test Cases, Tranche 2 (a decision which has not been appealed) and The Accident Group Test Cases Tranche 2. An appeal in The Accident Group Test Cases Tranche 2 is listed for hearing by the Court of Appeal in April 2004. In that case each panel solicitor agreed to appoint a company (AIL) as its agent for the purposes of investigating, collating and assessing information regarding claims (see [340]). The arguments in relation to those fees are set out in paragraphs [341 to 373]. I would particularly draw attention to paragraph [367]. In that case Master Hurst disallowed the fees claimed because the clients had never expressly or impliedly authorised the solicitor to incur them (para [379]). For completeness I should add, although this is not relevant in the cases before me, that Master Hurst also ruled the payments to AIL to be illegal referral fees and therefore irrecoverable for that reason.

In the absence of any argument at all to justify the second fee of £246.75 including VAT paid in respect of a "risk assessment report" I disallow this fee also.

In my judgment the surveyors’ reports in these cases were of use to the solicitors in two particular ways. First, they enabled the solicitors to include full details of the housing defects in their letters before claim. Secondly, they enabled the solicitors to estimate more accurately whether, if proceedings were commenced, the claim was at risk of being allocated to the small claims track. I do not accept that it was necessary to obtain surveyors’ reports in any of these cases and had I made a preliminary ruling on proportionality against these claims I would have disallowed the surveyors’ fees entirely. However, for reasons already given, I will not apply the dual test of necessity and reasonableness to all items in these bills.

Mr Hogan presented a forceful case for saying that it would be appropriate for me to disallow these fees on conduct grounds. However, having considered the matter carefully, I take the view that it was reasonable for these Claimants to obtain these reports. It certainly cannot be said that, in cases such as these no reasonable claimant properly advised would have commissioned a surveyor’s report so early. Although they are experts’ reports the strictures on expert evidence in the Practice Direction on Protocols do not apply to them: had any of these cases gone to trial I am sure that further expert evidence would have been obtained then and that evidence might well have been from a single joint expert. I accept that PD Associates’ letter style and actions were aggressive and war-like throughout. However, I do not think that is, by itself, sufficient to render unreasonable an item of costs which is otherwise reasonable. (For the avoidance of doubt, I should make clear that I express no opinion on the reasonableness of early surveyors’ reports in cases which are governed by the pre action protocol for housing disrepair.)

On the question of quantum, neither parties gave me any detailed information as to the sum I should allow. The Claimant’s case did not include any explanation of how Battertons’ fee of £250 plus VAT was originally arrived at or why it was departed from in some cases. Although it was invited to do so the Defendant did not state what fees it pays to its expert nor what fee would be an appropriate fee for a Bridgend surveyor to charge for a short house buyers report.

In the absence of any other information to assist me I shall set what I consider to be a fair sum based upon the time reasonably spent by and an hourly rate for a fee earner in a surveyor’s office. I would allow an hourly rate of £80 for an appropriate fee earner from a local surveyors’ office, 45 minutes for attendance at the dwelling, 45 minutes for local travel and 1½ hours for preparing, checking and signing the report. Since this would amount to £240 plus VAT, in these circumstances I will allow in each case the amount actually paid in most cases (£250 plus VAT of £43.75). The higher sums paid to Battertons. Stevens Scanlan and W T Hills are not justified to the extent that they exceed £293.75.

The last hearing in this case was on 30 January 2004 and the next hearing, other than for delivery of this judgment, is listed for 17 May 2004. At the last hearing I was asked to extend the time for applying for permission to appeal to 17 May 2004. I refused that application saying that the normal time limit fixed by the rules was appropriate. However, I now take the view that the ordinary time limit is inappropriate. My ruling that the CFAs in these cases are unenforceable may well have an effect upon the Claimant’s further representation in these cases. I am now of the view that the Claimants, and PD Associates should be given more than the usual amount of time to consider their positions. I therefore extend the time for appealing this judgment so that it will not start to run until 17 May 2004.

I would like to pay a compliment to counsel for both parties for the clarity and succinctness of their submissions which necessarily ranged over many points, some of which were novel and difficult.

Appendix 1

Appendix 2

Non Compliance with CFA Regulations

Availability of Legal Aid

Quantum of Success Fee

Proportionality

Fees Paid to Fastrack Litigation Services Ltd

Surveyor’s Reports