Andrews v Harrison Taylor Scaffolding & Ors

In these proceedings the Claimant sought damages following an accident at work on 11 August 2000. The Claimant was employed by the First Defendant as a trainee scaffolder, and was working on a site owned by the Second Defendant, on which the building work was the responsibility of the Third Defendant. He consulted solicitors, Bollin Legal Associates Ltd (BLA) (formerly Axtons). Judgment was ultimately obtained against the Third Defendant on liability, with damages to be assessed. The damages were ultimately agreed at £3,750, the matter being settled on the basis that the Third Defendant would pay the Claimant’s costs to be assessed if not agreed and pay a contribution of £2,000 towards the Second Defendant’s costs. The First Defendant was to bear its own costs.

The Claimant submitted a bill for assessment totalling £10,982.78. On 11 May 2005 the Defendant’s Solicitors served Points of Dispute which identified a preliminary issue:

“It would appear that Ashley Ainsworth “sign up” the Claimant to an insurance policy that includes the burden of a bank loan for disbursement funding.

Bollin Legal for their part secures a CFA with the Claimant and again that CFA bears the Ashley Ainsworth emblem with the maxim “Championing your right to compensation”.

From the above the Defendant suspects that it is a pre-condition of the arrangement/relationship, that to secure future referrals, and remain on the Ashley Ainsworth panel that they recommend, maintain or alternatively advise the Claimant to continue with the Ashley Ainsworth policy. In fact Ashley Ainsworth’s involvement goes beyond the CFA and provision of ATE insurance in that it includes the provision of the medical report …

The corollary is simply this – failure to recommend … will result in termination in membership of the Ashley Ainsworth panel. It would seem therefore that the Claimant’s solicitors, Bollin Legal, have an interest in recommending the Ashley Ainsworth policy and yet from the CFA under “other points” they say unequivocally they have no interest. Note that this section is signed by both the Claimant solicitor and the client in confirmation.

It is difficult to conceive or even accept that there is “no financial interest” in the relationship between Bollin Legal and Ashley Ainsworth. Is it the Claimants solicitors case that Ashley Ainsworth passes on work to Bollin Legal purely out of goodwill?

The Claimant is requested to clarify the above, as clearly on the facts it appears they do have an interest and if this is the case, then the CFA Regulations have been breached with the consequence that no costs are recoverable under the CFA.”

In response to that proposition BLA responded on 1 June 2005. They denied that Ashley Ainsworth (Ainsworth) “sign up the claimant to an insurance policy” and stated:

“Cases are referred by Ashley Ainsworth to panel solicitors prior to any funding arrangements having been recommended or entered into. Panel solicitors vet claims and discuss appropriate methods of funding and funding options directly with clients and the client then provides Bollin Legal Associates with instructions as to how they wish to proceed.

If an after the event policy is required Ashley Ainsworth Legal Protection upon instruction from Bollin Legal Associates will arrange for an insurance policy to be taken out on behalf of the client.”

BLA then went on to explain the procedure in relation to the CFA:

“Where clients choose to proceed by way of Conditional Fee Agreements supported by a disbursement funding loan and an after the event policy of insurance, Ashley Ainsworth are instructed by Bollin Legal Associates to attend at the client’s home to conduct a home visit to carry out a personal injury fact find which incorporates enquiries in accordance with Sarwar v Alam after any alternative more appropriate methods of funding the claim which may be available to the client and, thereafter, should they be satisfied that a Conditional Fee Agreement with a disbursement funding loan and an after the event policy of insurance is the most appropriate means of funding the claim, to provide the client with oral advice in accordance with Regulation 4 of the Conditional Fee Agreements Regulations and to ensure that the client signs the Conditional Fee Agreement, the personal injury fact find sheet and checks and signs the preliminary statement that has been prepared for them.”

The solicitors deny that it was a pre-condition of the arrangement/relationship between Ainsworth and the solicitors that the solicitors should recommend, maintain or advise the claimant to take out a policy of insurance arranged by Ainsworth, nor is there any agreement between Ainsworth and the solicitors to this effect:

“Claims are referred to Bollin Legal Associates by Ashley Ainsworth on whatever basis Bollin Legal Associates consider is the most appropriate way for the client to fund the claim. Bollin Legal Associates take a considerable number of referrals from Ashley Ainsworth where clients have before the event legal expense insurance and those claims are run on a private retainer without the benefit of the Ashley Ainsworth arranged insurance policy or any disbursement funding loan.”

The solicitors accept that Ainsworth also have a medical agency which the solicitors may choose to use on behalf of their clients in they so wish. This was not a mandatory condition of panel membership. The solicitors do not receive any commission from Ainsworth or NIG (the insurers) for recommending the insurance policy:

“And therefore there is no financial interest to be declared pursuant to Regulation 4(2)(e)(ii) of the CFA Regulations.”

The relevant provision of Regulation 4 of the Conditional Fee Agreement Regulations 2000 is as follows:

“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

…

(2)

Those matters are –

…

(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.”

In Garrett v Halton Borough Council [2006] EWCA Civ 1017 the Court of Appeal dealt with the question of “interest” in a case involving Ainsworth and one of its panel solicitors. Whilst it might be thought that the decision of the Court of Appeal in that case might be determinative of the issue in this case, it is argued by the Claimant that the position can be distinguished. In brief Mr Laughland submits that in Garrett the paying party averred that “failure to comply with recommending the NIG policy would lead to termination of panel membership” (judgment paragraph 97). There was no response from the Claimant’s solicitors to that averment.

On detailed assessment the Deputy District Judge concluded in the light of that lack of response that he was “not satisfied that the Claimant has established that the Claimant’s solicitors have no interest in recommending the policy” (paragraph 97). On appeal to the Circuit Judge the Judge concluded that:

“It is a proper inference that in fact it would have done so, in the sense that [if] the claimant solicitors, Websters, recommended to some clients to go elsewhere for their ATE insurance, then they would have been taken off the panel …”

Before the Court of Appeal “Mr Bacon [for the Claimant/Websters] has not challenged this finding. Accordingly, Websters did have a financial interest in recommending the NIG insurance to Ms Garrett.” (paragraph 98)

On that basis Mr Laughland argues that the issue in this case must be judged in the light of the evidence adduced in this case, and not by inference from the reasoning applied to the unchallenged factual matrix assumed in Garrett.

The Claimant entered into a CFA with the solicitors on 8 April 2003. Among other things the agreement states under the heading “other points”:

“Immediately before you signed this agreement, we verbally explained to you the effect of this agreement and in particular the following:

…

(d)

other methods of financing those costs, including private funding, Community Legal Service funding, legal expenses insurance, trade union funding;

(e)

(i) In all the circumstances on the information currently available to us, we believe that a contract of insurance with the National Insurance and Guarantee (NIG) is appropriate. Detailed reasons for this are set out in Schedule 2.

(f)

(ii) In any event, we believe it is desirable for you to insure your opponent’s charges and disbursements in case you lose.

(g)

(iii) We confirm that we do not have an interest in recommending this particular insurance agreement.”

In Schedule 2 under the heading “The Insurance Policy” the agreement states:

“In all the circumstances and on the information currently available to us, we believe that a contract of insurance with National Insurance and Guarantee (NIG) is appropriate to cover your opponent’s charges and disbursements in case you lose.

This is because we feel National Insurance and Guarantee (NIG) policy is suitable in relation to your needs and resources.

We are not however insurance brokers and cannot give advice on all products which may be available.”

The Claimant had entered into a later CFA with the firm dated 6 May 2004 when another defendant was added. It is in identical terms.

Mr Marven spent some time going through the Contractual Matrix to show the close links between Ainsworth and its panel solicitors. None of this appears to be controversial, since it is spelt out in the documents and, in her very frank evidence, Ms Cunliffe accepts that Ainsworth introduced work to her firm “which is clearly a valuable trading arrangement for this firm”. She denies however that it constitutes a declarable interest under Regulation 4(2)(e)(ii).

Ms Cunliffe exhibits the Ainsworth Operating Manual (AC1) which itself contains, among other things, a pro forma conditional fee agreement and risk assessment, which, on the exhibited copy under “other points”, contains exactly the same wording as the agreement signed by the Claimant. The CFA bears the Ainsworth heading. The Operating Manual also contains a pro forma Rule 15 client care letter and fact find, which recommends the client to take out an ATE insurance policy “which will cover the cost of our disbursements and the other side’s legal costs and disbursements if you lose your case”. The client is then told:

“The Bank of Scotland may also provide funding facilities (known as a disbursement funding loan) to enable you to pay not only disbursements as the case progresses, but the insurance premium itself. The insurance premium and disbursements will be refunded to you if we are able to recover them from the other side.

The Bank of Scotland will deduct interest that accrues on the disbursement funding loan from your compensation, we will fully reimburse that amount to you. If you lose your case then you will not have anything to pay.”

The letter continues:

“To qualify for this scheme we are enclosing copies of each of the following (one copy being for your own records):

(1)

an appropriate conditional fee agreement

(2)

an (sic) fact find form

(3)

a Consumer Credit Application Form

(4)

a Medical Records authority

(5)

a Hospital Records authority

(Please note that one of the reasons for the fact find form is so that we can be sure that you do not have any other existing form of insurance which might better suited to your case, for example household, or motor legal expenses insurance.)”

The pro forma letter goes on to explain, under the heading “Our Charges”:

“Our view is that it would be most appropriate for you to enter into a no win no fee agreement. For the reasons explained above, what this means is that should the event arise where you are ordered to pay the other side’s legal costs, then under the terms of the insurance arranged with National Insurance and Guarantee (NIG), they will pay the other side’s legal costs for you, and under the terms of the no win no fee agreement you will not have to pay your own legal costs.”

The personal injury fact find and medical and hospital authorities all bear the Ainsworth banner.

Section 1 of the Operating Manual sets out key personnel, including: Claims Management Companies Ashley Ainsworth & Co Ltd, Ashley Ainsworth Legal Protection Ltd; Underwriters National Insurance & Guarantee (NIG); Cover Holders Legal Insurance Management Ltd; Funders Bank of Scotland; Vetting Solicitors Ashley Ainsworth & Co Ltd; Medical Agency Ashley Ainsworth’s Approved Agency.

The Operating Manual also contains the Bank of Scotland Panel Solicitor Agreement. The solicitors acknowledge that the Bank has entered into credit agreements with clients to fund personal injury litigation, insurance policy premia and disbursements. The solicitors acknowledge that the Bank is entitled to rely on the proceeds of actions or payment under policies to obtain repayment of such advanced to clients under its credit agreements

Ms Cunliffe also exhibits (AC2) a copy of the agreement between the Bank of Scotland and Messrs Axtons, the predecessors of BLA, dated 30 October 2002.

Gareth Ainsworth, a Director of Ainsworth, exhibits extracts from the agreement between his company and the Bank of Scotland. He particularly points out the definition of “policy”:

“The legal expenses insurance policy issued to claimants and administered by Composite Legal Expenses Ltd in the form set out in Schedule 3, or as may be amended or replaced for the purposes of this agreement by written agreement of the parties to this agreement.” (GA1)

Under the terms of the agreement between Ainsworth and the Bank the funding loan had to be insured by an approved policy. Composite Legal Expenses Ltd issued policies on behalf of NIG as cover holder. The Bank of Scotland did not prohibit the use of other insurance products, but it was a requirement that the premium and the interest on the loan be insured. Other insurance policies could only be used with the written agreement of the Bank.

Ainsworth further agreed with the Bank that the Operations Manual, CFA and insurance policy would not be amended or varied in any way unless prior written agreement had been obtained. This requirement is spelt out at paragraph 4.11 of the agreement with the Bank under the heading “Obligations of Ashley Ainsworth” (GA2).

The funding loan agreement in this case is dated 8 April 2003 and signed by Mr Andrews. It is countersigned on behalf of the Bank on 15 April 2003. The agreement records:

“Part 4 details of policy. The policy taken out by the borrower relating to the claim assigned to us as security for this agreement:- National Insurance & Guarantee.”

The terms and conditions provide:

“6.

Security

6.1

You will take out and maintain the policy.

6.2

You hereby assign to us the benefits of the policy by way of security for your obligations to us under this agreement.

6.3

You agree that you will not do, or omit to do, or permit to be done or omitted any act or thing which might cause the policy to be declared void or to become voidable.”

This document again bears the Ainsworth banner. The insurer is NIG, the cover holder is Legal Insurance Management Ltd “who are acting on behalf of NIG”. Under ‘exclusions’ the policy states:

“This insurance does not provide cover:-

…

16.

For any legal costs and expenses that can be recovered under any other insurance except beyond the amount which would be payable under such insurance had this policy not been effected.”

The policy schedule identifies the claimant as the insured, Messrs Axtons as his appointed representative and Ashley Ainsworth Legal Protection Ltd as agent. The schedule is signed by Kevin O’Connor, the agent on behalf of Legal Insurance Management Ltd and NIG.

In her first witness statement dated 22 December 2006 Amanda Jane Cunliffe, the Chief Executive of BLA denies that it is a pre-condition of the arrangement/relationship between the firm and Ainsworth that to secure future referrals of work and to remain on the Ainsworth panel the firm must recommend or advise the client to take out the Ainsworth policy. She continues:

“7.

I wish to make it clear for the benefit of the court that “the Ashley Ainsworth policy” is in fact a policy of insurance underwritten by NIG one of the market leaders in the provision of ATE insurance at the time that Mr Andrews commenced his claim. Ashley Ainsworth acted merely as agents for the Cover Holder in respect of that policy. The Cover Holder was a company called Legal Insurance Management Ltd in Kent. It is therefore somewhat misleading to call the policy “the Ashley Ainsworth policy”.

…

9.

The reason that a policy of After the Event Insurance was recommended to the Claimant in this case and more specifically the policy underwritten by NIG is quite simply because he chose to fund his claim by way of a Disbursement Funding Loan. At that time NIG were by far the largest HBoS approved insurer in the market place and the most readily accessible to most firms of solicitors and their clients. As far as I am aware there are and certainly were then only a limited number of After the Event Legal Expense Insurance providers in the market place who will agree to insure a disbursement funding loan such as this one with Halifax Bank of Scotland and none which will do so on terms more favourably than those offered by NIG.”

Ms Cunliffe points out that it is clear from the Operations Manual that panel solicitors are not under any obligation to recommend any particular product of insurance and in fact the Operating Manual makes it clear that alternative methods of funding the claim must be discussed with the client by both Ainsworth’s staff and thereafter the solicitors, prior to any litigation funding arrangements being put in place. The firm did not participate at any time in the “claims exchange scheme”. She goes on to point out that her firm had taken a number of referrals from Ainsworth where the clients had the benefit of BTE insurance. The firm accordingly did not recommend ATE insurance. No sanction was levied on them by Ainsworth and they continued to remain on the panel. She suggests that cases in which alternative ATE policies had been recommended numbered some 400 in the period February to July 2004. In cross-examination she accepted that alternative funders had become available from October 2003 by which time Ainsworth had “fallen on hard times”.

The firm had also accepted a number of introductions from Ainsworth where the clients did not have any LEI but did not wish to use a disbursement funding loan or ATE product. These clients simply entered into a private retainer with the firm. Notwithstanding this the firm remained members of the Ainsworth panel until they (Ainsworth) ceased trading in January 2005.

Ms Cunliffe continues:

“13.

Bollin Legal Associates Limited did not have a Panel Agreement with Ashley Ainsworth. There is no contractual obligation imposed on this firm by Ashley Ainsworth. Panel Members are asked to adhere to conditions within the Operating Manual and that is all. The conditions in the Operating Manual which must be adhered to deal largely with draw down of disbursements from the disbursement fund and the procedures to be followed at various stages of the claim i.e. settlement, issue of proceedings and making a claim upon the policy if the claim should fail.

14.

I note that the Defendant avers that Bollin Legal Associates have a financial interest in their relationship with Ashley Ainsworth in so far as Ashley Ainsworth introduced work to Bollin Legal Associates which is clearly a valuable trading arrangement for this firm. That is not denied. What is denied is that that constitutes an interest which is declarable pursuant to Conditional Fee Agreement Regulation 4(2)(e)(ii) …”

In her second statement, also dated 22 December 2006, Ms Cunliffe expands upon what she had already said:

“2.

… At the outset this firm signed a Panel Solicitor’s Agreement with the funder Bank of Scotland (now HBoS), and agreed to work to the requirements of the Operations Manual as provided by Ashley Ainsworth.”

Ms Cunliffe then deals with the history of the firm, and the fact that Catherine Axton had for a period been employed in-house by Ainsworth. She then decided to set up her own firm, and Ainsworth agreed that if she did do so they would introduce claims to her. She set up Axton Solicitors Ltd, which subsequently changed its name to BLA.

There are also witness statements dated 29 September 2006 and 22 December 2006 from Gareth Ainsworth, a director and shareholder of Ainsworth, which he describes as a Claims Management Company, which ceased to trade in January 2005. Mr Ainsworth refers to the Court of Appeal decision in Garrett v Halton Borough Council:

“5.

I further understand that it is alleged that the solicitors have an indirect financial interest in recommending the policy of insurance in this case because the Defendant suspects that Ashley Ainsworth made it a condition of panel membership that a solicitor recommends a particular insurance product and failure to so recommend will result in termination of panel membership.

6.

I can say whole heartedly that this is not the case. The only circumstances in which solicitors were required to recommend a particular policy of insurance was where a client wished to make use of a disbursement fund rather than pay for disbursements themselves. In that case if the HBoS disbursement fund was used, HBoS made it a condition that the client take out an approved policy of insurance in order to ensure that if the claim failed the whole of the disbursement fund would be redeemed. By far the biggest approved insurer being NIG. The client was contractually obliged to HBoS to do this under the terms of the Consumer Credit Agreement that they signed with HBoS. This had nothing to do with the solicitor or even with Ashley Ainsworth. Insurance was not a condition laid down by my company it was simply something that we could arrange for the client if they wanted to use the disbursement funding.

7.

We did not insist that clients or solicitors used or recommended the insurance product. Our staff were trained to explore very carefully client options in respect of the best methods by which to fund the case …

…

9.

If a Panel Member or a client had asked to use an alternative contract of insurance all that would have happened would have been that the insurer would have been put forward to HBoS. …

10.

To my knowledge such a request was never made. It is generally accepted that NIG being a AA rated insurer offered excellent cover and protection to the client. The premiums were also very competitive within the market place at that time. The premium itself was insured as was the interest that accrued upon the disbursement fund meaning that in the event that the claim failed the client could walk away without having to pay a penny.”

In his second witness statement Mr Ainsworth explains the difficulties which had arisen with Messrs Websters prior to the case of Garrett coming to the Court of Appeal. He confirms that there were no written terms of agreement between his company and any of its panel solicitors:

“10.

… However there was a Panel Solicitors Agreement which Ashley Ainsworth had to procure for Bank of Scotland (now “HBoS”) and that agreement was in a prescribed format provided by HBoS. The parties to the agreement were HBoS and the Panel Solicitor. In addition Ashley Ainsworth simply provided an Operations Manual to Panel Solicitors to which they had to work.

11.

The main reason why the NIG policy was used in the Ashley Ainsworth scheme was that it was a condition of the agreement with the funder HBoS.”

Finally Mr Ainsworth dealt with commission:

“15.

… Ashley Ainsworth Legal Protection Ltd did receive a commission from Legal Insurance Management Ltd who were the cover holder for the policy under the scheme at the time Mr Andrews purchased his policy of insurance. They in turn I understand received their commission from NIG as cover holder. In respect of HBoS the financial benefit to them, as I understand it, was the interest earned on the funding loan. Ashley Ainsworth did not receive any remuneration from HBoS.”

When giving evidence Mr Ainsworth confirmed that NIG paid a commission to Legal Insurance Management Ltd, who in turn paid commission to Ainsworth. Ainsworth received 80% of the gross premium, which amounted to approximately 40% of its total income.

When giving evidence Amanda Cunliffe confirmed that she was aware of the provisions of the Solicitors Introduction and Referral Code 1990, which provides:

“Section 1: The Basic Principles

(1)

Solicitors must always retain their professional independence and their ability to advise their clients fearlessly and objectively. Solicitors should never permit the requirements of an introducer to undermine this independence.

…

Section 2: Introduction or Referral of Business to Solicitors

…

(11)

Where, so far as can be reasonably ascertained, more than 20% of a firm’s income during the period under review arises from a single source of introduction of business, the firm should consider whether steps should be taken to reduce that proportion.”

Ms Cunliffe confirmed that as at April 2003 when the CFA was made 95% of her firm’s business came from Ainsworth. She stated however that it was possible to take more than 20% of one’s business from a particular source, but it was necessary to pay particular attention to the Professional Rules, and to preserve the independence of the firm. She stated that she had had a number of telephone discussions with the Ethics Department of the Law Society, and Law Society representatives had visited the premises of her firm. Her firm was required to use the pro forma CFA and Rule 15 letter, which she thought had been drafted by Messrs Eversheds on behalf of HBoS. Although Section 3 of the Operating Manual set out the steps which had to be adhered to, Ms Cunliffe stated that the solicitors had the opportunity to approve the client care letter before it went to the client, and to inform Ainsworth of any amendment. There had never been a problem if a particular matter was discussed with Ainsworth.

If the client had BTE insurance there was no point in using the Ainsworth scheme, instead the firm used its own terms of business.

In certain cases the client might decline the disbursement funding loan, but might still take out the NIG policy.

With regard to the question whether the firm had any interest in recommending the ATE policy, it was Ms Cunliffe’s view that the NIG policy was one of the best policies on the market. Other insurers fell outside the scheme, and the firm did not recommend a different policy when HBoS was the disbursement funder. In that case the NIG policy was always recommended. Most clients used the funding facility.

As a result of instability in the market Ainsworth withdrew in December 2003. HBoS withdrew at the end of 2003 as well. A funder called Church House continued to use the NIG policy until March 2004, other companies used other policies. NIG itself withdrew from the market at the end of March 2004. Prior to that the firm did not direct clients away from the NIG policy, and until the scheme ended all funded clients were referred to NIG.

BLA and Ainsworth operated out of the same premises in Sunderland Street. The firm took space from Ainsworth, and there were other businesses in the premises. Subsequently BLA took a lease on other premises, and Ainsworth took space from them. This was at about the time when HBoS decided to withdraw from the market. Ainsworth therefore decided to move at the same time. This arrangement continued until Ainsworth went out of business. Mr Jones, a director of Ainsworth, carried cards for both BLA and Ainsworth, although he had two separate email addresses. BLA did recruit some staff from Ainsworth, but the company had no control over BLA staff. The only person who had worked for both BLA and Ainsworth was a bookkeeper cashier. The reason why Mr Jones had BLA business cards was that he assisted them in obtaining their own disbursement funding. He was at no time an employee of BLA.

Gareth Ainsworth stated in evidence that initially his company had a salary and commission structure, based on the number of claimants who joined the scheme. This structure was changed in 2002 when the company bonus structure was introduced.

The contents of the Operations Manual had to be checked by HBoS, and the NIG policy was made available to all clients, even if no disbursement funding loan was required. The NIG policy was approved by HBoS.

Legal Insurance Management paid Ainsworth commission on a weekly basis. That company was regulated by the FSA, whereas Ainsworth were not.

Mr Laughland’s case is that:

Mr Laughland submits that there is no evidence that the solicitors had a declarable interest arising from its recommendation to use the NIG policy. The requirement under Regulation 4(2)(e)(ii) is to inform the client whether the solicitor has an interest in recommending the use of the NIG ATE policy, ie, whether the solicitor has an interest in doing so in fact, and not simply whether the solicitor believes that he has an interest in doing so.

Mr Laughland accepts that if it is found that there was a declarable interest, this was not declared in accordance with the Regulation, and this would constitute a material breach when considering the test laid down in Hollins v Russell [2003] EWCA Civ 718.

The Defendant’s skeleton argument suggests that the interest lay in the continuance of the profitable joint venture between Axtons/BLA and Ainsworth (paragraph 32). Mr Laughland argues that this is in contrast to Regulation 4(2)(e)(ii) which requires the solicitor, if he recommends a particular contract of insurance, to give his reasons for doing so, and whether he has an interest in doing so. The Defendant argues that HBoS was the only disbursement funder, and it was a term of the loan to the client that the loan must be secured by a policy, and the policy recommended was that with NIG. Mr Laughland points out that the Bank of Scotland credit agreement does not have the details of the policy pre-printed. It should therefore be inferred that HBoS would have considered an alternative policy.

He accepts that “interest” is not necessarily a direct interest, it can also mean a disadvantage. But membership of a panel is not, in his submission per se declarable. Since BLA are not members of the Insurer’s Panel of Solicitors they did not have to declare their association with Ainsworth. Continuation of the profitable joint venture is nothing to do with insurance. Mr Laughland argues that since there is no obligation to declare the necessity to use a particular medical agency, there is therefore no obligation to declare anything else, save as required by the Regulations. If a profitable joint venture is to be declared how is it to be measured? At what stage does it become declarable? BLA had no interest in the particular insurance product. Ms Cunliffe said that the NIG policy was the best on the market. HBoS made it a condition of disbursement funding, which was the reason for recommending that policy, but BLA had no interest in recommending the policy, since they derived no benefit or detriment from the recommendation.

Mr Marven argues that in no sense was the advice given to the client fully independent. It was subject to a contractual fetter which was never declared to the client. In recommending the policy the solicitors used the words imposed upon them by their contractual obligations, indicating that the reason for recommending the NIG policy was “we feel the … NIG … policy is suitable in relation to your needs and resources”. Mr Marven submits that this was not correct and that whatever the client’s actual needs or resources, it is clear from the pro forma nature of the CFA that the same advice would have been proffered to all. The real reason for recommending the policy was that the solicitor was obliged to recommend it by the Operating Manual.

Mr Marven argues that the advice given to the client was not transparent. The solicitor did not give the real reason for recommending the NIG policy, ie that it was constrained by the rules of the scheme to do so, nor did the advice record what Mr Marven calls “the obvious interest which it had in the recommendation”. He submits that panel membership is a declarable interest per se, at least where, as here, the panel is one under which work is referred, and where various companies, including a solicitor, embark on a complex joint venture involving separate but linked transactions. In his submission it is plain that the solicitor has an interest in the continued good order of the project, by making the ATE recommendation which it has agreed with its business partners to give (and delegated to one of them to deliver). On any view he submits, the solicitors’ true reasons for recommending the ATE policy – that it was obliged to do so by its agreement with other members of the scheme – were not disclosed.

Mr Marven argues that the client, in completing the fact find, is steered down the road into acceptance of the NIG policy. He points out the requirements of the Operations Manual under the heading:

“Panel Solicitors Authority Obligations and Service Standards

…

These standards must be adhered to without exception as they are critical to the future success of the Ashley Ainsworth scheme.

Non compliance of these Obligations and Standards may result in the Panel Solicitor becoming personally responsible for any claims on the policy and may result in a Panel Solicitor being removed from the Ashley Ainsworth Panel.

…

General Standards

(i)

The Panel Solicitor must comply in all respects with the Operating Manual (and any amendment/revisions thereto), the policy and any reporting criteria stipulated by Ashley Ainsworth from time to time.

(ii)

Ashley Ainsworth will audit files on a regular basis and will require mutually convenient access from time to time.”

The solicitor was also obliged to remit from their own resources the unrecovered part of any disbursement funded by the loan.

Given the dependence of BLA on Ainsworth as a source of work (95% in 2003, where after it diminished), and their close proximity to each other, this arrangement was in fact a joint venture.

The Defendant submits that it is not necessary for the Court to find that BLA had to recommend the NIG policy on pain of being dropped from the panel. Membership of the panel itself is sufficient to establish an interest. Ms Cunliffe’s own evidence admits that interest, but the distinction she draws at paragraph 14 of her first witness statement (see paragraph 31 above) cannot be sustained. Recommendation of the NIG policy was part and parcel of the Ainsworth scheme.

The facts in this case are not in dispute. The sole question is whether the interest which BLA had in their relationship with Ainsworth was such as to require it to be declared in accordance with Regulation 4(2)(e)(ii). Although the Court of Appeal’s decision in Garrett v Halton Borough Council may have been decided on a factual basis which had never been tested, there is, in my judgment, sufficient guidance in the Court of Appeal’s decision to assist in the resolution of this case.

The Court of Appeal, in dismissing two submissions by Mr Drabble QC, and one from Mr Bacon, stated:

“92.

Nor do we accept that the regulations should be construed narrowly because of their potentially draconian effect on solicitors. The purpose of the Regulations is to protect clients, not the financial interests of solicitors. In our judgment, the Regulations should be construed by giving the plain language in which they are expressed its normal and natural meaning. We do not accept that the word “interest” is ambiguous. For the reasons that we shall give, it seems to us to be clear that it includes membership of a panel such as the Ainsworth panel.

…

94.

… The obligation in regulation 4(2)(e)(ii) is to inform the client if he recommends a particular insurance contract “whether he has an interest in doing so”. The obligation is not to inform the client whether he believes that he has an interest in doing so; it is to inform the client whether he has an interest in doing so in fact. This regulation is concerned with client protection. …

…

97.

There was a close relationship between Websters and Ainsworth. Websters were dependent on Ainsworth for referrals of cases, although it is unclear to what extent. As Mr Morgan points out, cases are the lifeblood of solicitors. The profit generated by cases is likely to be of greater significance to solicitors than commissions paid on insurance premiums paid for ATEs in connection with CFAs. The indirect financial interest in maintaining a flow of work through membership of a panel of solicitors is greater than the direct financial interest in commissions paid for insurance premiums. The advice to use the Ainsworth insurance product came in a CFA that it had apparently supplied to its panel solicitors and which bore its livery. …”

The judgment then goes on to quote the judgment of His Honour Judge Stewart QC, who had decided that it was a proper inference to draw that had the solicitors recommended some clients to go elsewhere, they would have been taken off the Ainsworth Panel, a finding which was not challenged by Mr Bacon. The Court of Appeal went on to find that Websters did have a financial interest in recommending the NIG insurance to their client. The fact that they had informed the client that they were on the Ainsworth Panel “did not disclose to Ms Garrett that Websters had a financial interest in remaining on the Panel which would be lost if she did not accept their recommendation that she entered into an ATE with NIG”.

In the instant case there is no evidence that failure to recommend the NIG policy would have resulted in BLA being removed from the Ainsworth Panel. The question is whether, in the light of paragraph 97 of the judgment of the Court of Appeal which I have quoted above, BLA have an interest in recommending the NIG policy, which is declarable under the Regulations.

In my judgment the conclusion is inescapable. At the relevant time (April 2003) BLA were receiving 95% of their work from Ainsworth. They had to comply with the Operations Manual, and, where disbursement funding was required, had to recommend the NIG policy. Ms Cunliffe thought the NIG policy was the best available in any event, but it is beyond doubt that her interest in keeping the profitable joint venture going meant that she and her firm had a declarable interest in recommencing the NIG policy. There may have been occasions when a disbursement funding loan was not required, when other policies of insurance were used. It is possible that BLA had a declarable interest in respect of those other policies, because they were entitled to receive commission. Although it was argued that it was possible to use a different policy where disbursement funding was provided by HBoS, it seems that no other policy was ever recommended. In my view, therefore, BLA did have a declarable interest in recommending the NIG policy, even if the reason for the recommendation was that it was the best policy on the market, rather than they were forced to do so under the terms of the Operating Manual, but, as the Court of Appeal has pointed out, the profit generated by cases is likely to be of greater significance to solicitors than commissions paid on insurance premiums.

In those circumstances I resolve the preliminary issue by finding that BLA did have a declarable interest in recommending the NIG policy, and they are in breach of Regulation 4(2)(e)(ii) in not declaring that interest. Given Mr Laughland’s conclusion at paragraph 51 above, the CFA is unenforceable and no costs are recoverable under it save any disbursements already paid.