Kashmiri v Ejaz & Anor

This judgment relates to a preliminary issue at the detailed assessment of the defendants’ bill of costs following an order made in favour of the defendants by the Croydon County Court on 24 May 2006.

The claimant issued proceedings against the defendants on 16 December 2003 claiming £27,637.15, being the cost of repairs and dilapidations at the end of the defendants’ lease of business premises at 63A Balham High Road, London SW12 9AD. The sum included costs of disrepair, surveyor’s reports and expert drainage services. The claim was strenuously resisted and ultimately, after a number of interlocutory hearings, the parties negotiated a settlement on 24 May 2006, whereby the claimant consented to the claim being discontinued and to pay the defendants’ costs of the action to be assessed on an indemnity basis after 6 May 2005, if not agreed and also to pay the defendants’ costs of 24 May 2006 such costs to be subject to a Detailed Assessment on a standard basis if not agreed.

The defendants duly served their bill of costs amounting to £60,670.87 inclusive of VAT, disbursements and additional liabilities. Points of dispute were served by the claimant’s solicitors on 7 August 2006 and thereafter on 3 October 2006 the detailed assessment was transferred to the Supreme Court Costs Office. Replies to the Points of Dispute were served on 22 November 2006.

The defendants had originally instructed their solicitors by way of a private retainer. On 8 June 2005 the defendants each entered into conditional fee agreements (“CFAs”) with their solicitors. The parties have agreed that the hearing today should deal with preliminary point 1 of the claimant’s points of dispute relating to whether the CFAs complied with Regulation 4(2)(c) of the Conditional Fee Agreements Regulations 2000.

The claimant submits that the CFAs are unenforceable because they fail to satisfy Regulation 4(2)(c) of the Conditional Fee Agreements Regulations 2000. They refer to handwritten endorsements on page 7 of the CFAs under a printed paragraph in Schedule 2 headed “The Insurance Policy” which read:

“Client advised re this. He is investigating availability of Pre-Event insurance and will revert if not available. Review this on 29 June. MH to write letter to client.”

This, the claimant submits, makes it plain that the defendants’ solicitors were not discharging their duty to take the requisite reasonable steps to establish the BTE position but were leaving it to the defendants and that the defendants had not investigated the position by the time the CFAs were executed. They state that there is a clear beach of Regulation 4(2)(c) as the defendants’ legal representatives have failed either to conclusively inform the client as to whether costs of proceedings are insured against under an existing contract of insurance or to have conclusively considered whether BTE insurance may be available, before the conditional fee agreements were made.

The claimants also submit that the defendants were sued in their personal capacities and that any form BTE cover such as that conferred in household insurance policies may have provided an indemnity. In their points of dispute they state : “it appears that this was not impressed on the defendants who consequently would not have appropriately considered their position regarding BTE as such not being in a position to adequately advise their legal representative”.

They further submit that the first defendant’s main language is Urdu and they do not think that the second defendant is to be a person with an understanding of insurance contracts to be able to determine the relevancy of the documents in his possession.

The claimants rely on the judgment of the Court of Appeal in Myatt and others v National Coal Board [2006] EWCA Civ 1017. They submit that the breach of regulation by the defendants is material and quote from paragraph 45 of Myatt as follows:

“We have already explained why in our view the materiality of a breach is not judged by its consequences. For these reasons the fact that a client had no relevant BTE when a solicitor infringes Regulation 4(2)(c) is irrelevant to the materiality of the breach.”

They refer to the discussion of this issue set out in paragraphs 55 and 56 of Myatt and to the guidance on how a solicitor should comply with his obligations under Regulation 4(2)(c) as set out in paragraphs 71 to 79 of Myatt.

In their replies to the claimant’s points of dispute the defendants explain that it is Michael Forrester, a solicitor and principal of the defendant’s solicitors, who made the handwritten annotation on the CFAs. The defendants submit that the contention regarding whether or not the defendants had sufficient understanding of insurance contracts is easily answered in that the defendants, although speaking Urdu as a first language, were, successful business men in this country and therefore their knowledge of insurance contracts was sufficiently higher than the ex-miners in the case of Myatt. They also refer to paragraph 79 of Myatt:

“What we have said in paragraph 71-78 should not be interpreted as giving encouragement to defendants to embark on fishing expeditions in the hope that if they ask a sufficient number of questions they may be able to show that the claimant’s solicitor did not discharge his Regulation 4(2)(c) duty.”

The defendants have filed two witness statements of Matthew James Hearsum, who was, at the relevant time, employed by the defendants’ solicitors as a paralegal. In his first statement dated 23 May 2006, Mr Hearsum states that he met with the defendants on 8 June 2005 and that he had previously requested the second defendant to bring with them to the meeting any insurance policies relevant to the case. He also refers to his file note of his meeting with the defendants on 8 June 2005 in which he records “MJH engaged in conference with first and second defendants wherein MJH went through the effects and implications of the conditional fee agreements and any BTE they may have. HE & AE confirmed that they did not have any relevant BTE, but would double check just in case.” Mr Hearsum further states that the reasons why the defendants informed him that they knew they did not have any BTE insurance to cover the claim was because this was a commercial dispute relating to a business which had ceased to trade over three years previously and in any event the limit for notification of claims had long since passed.

Mr Hearsum has also filed a second witness statement dated 30 January 2007, which appears to have been made pursuant to the claimant’s challenges relating to the CFAs. The essence of his statement is to deal with paragraph 72 of the judgment of Dyson LJ in Myatt regarding whether the defendants had a real knowledge and understanding of insurance matters. He states that there is no doubt in his mind that both the defendants understood what he meant when he discussed with them the possibility of BTE insurance. He further states his recollection of actually discussing with the defendants the implications of not having BTE, should an adverse costs order be made against them. Having been told that there was no BTE cover in place Mr Hearsum advised the defendants with regard to the purchase of an ATE insurance policy but the defendants declined to purchase an ATE policy on the grounds that the premium would be prohibitively expensive.

The defendants had also served a witness statement from Mr Forrester, the principal of the second defendants’ solicitors. A copy of this statement was not filed and was only handed to me immediately prior to the hearing.

In his statement Mr Forrester states that he met with Mr Hearsum the day after the CFA was signed and that he had been informed by Mr Hearsum that he had fully investigated the availability of BTE insurance and he was satisfied that no such insurance was in place but on a “belt and braces” basis he advised the clients to check further as soon as possible. Mr Forrester stated that he decided to make an appropriate endorsement by hand on the schedules to the CFAs. This endorsement was made on 9 June 2005 and later the same day Mr Forrester was informed by Mr Hearsum that he had received a telephone call from the second defendant, who again confirmed that BTE insurance was not in place. Mr Forrester states that the purpose of his endorsement was to ensure that the defendants’ interests were protected and that there was no question of them entering into ATE insurance if there was any possibility of BTE insurance being available to them.

The Conditional Fee Agreements Regulations 2000:

“ 4(1) Before a conditional fee agreement is made the legal representative must –

(a)

inform the client about the following matters and,

(b)

if the client requires any further explanation, advice or other information about any of those matters, provide such further explanation, advice or other information about them as the client may reasonably require.

(2)

Those matters are –

(a)

…

(b)

…

(c)

Whether the legal representative considers that the client’s risk of incurring liability for costs in respect of the proceedings to which the agreement relates in insured against under an existing contract of insurance

(d)

Whether other methods of financing those costs are available and, if so, how they apply to the client and the proceedings in question.

(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 contract –

(i)

his reasons for doing so, and

(ii)

whether he has an interest in doing so.”

Although no application was made for permission to call oral evidence the claimants requested and the defendants agreed that Mr Hearsum should attend before me for the purpose of cross-examination.

Mr Hearsum was cross-examined at length by Mr Marven, counsel for the claimant. It was put to Mr Hearsum that his attendance note, which was exhibited to his first witness statement, bore little resemblance to the detail contained in his witness statements. Mr Hearsum readily acknowledged that the attendance note was in his words “appalling.” At the relevant time he was a paralegal employed by the defendants’ solicitors and had been rebuked by his employers for the poor quality of his attendance notes. Nevertheless, he could recall with accuracy as to what transpired at the meeting with the defendants on 8 June 2005, simply because, of the many CFA agreements he has dealt with for clients, this was the only one where he considered that as a result of his five hour meeting with his clients and with his discussion with the second defendant previously, that these clients were commercially sophisticated enough for him to be able to rely on what they stated with regard to any before the event insurance. His example contained in paragraph 7 of his witness statement that it was the second defendant who informed him that this was a commercial dispute relating to a business that had ceased trading 3 years earlier and even if his home and contents insurance policy may have had before the event insurance cover any claim had to be made within 180 days, supported Mr Hearsum’s view that the second defendant had a real knowledge and understanding of insurance matters. Although Mr Hearsum had requested the clients to bring any policies of insurance with them to the meeting on 8 June 2005, when the clients failed to bring in any policies he was satisfied that they had checked the position for themselves and he was perfectly content to rely on their commercial knowledge.

Mr Hearsum was also cross-examined as to why he would have reported to his principal, Mr Forrester, that he had asked the clients to double check the situation with regard to the insurance. Mr Hearsum said that he was satisfied that he had complied with the statutory requirements but nevertheless there was no harm in asking the clients to double check the position. This did not mean to say that he had not complied with the regulations simply because he asked the clients to double check the position.

The claimants made no request to cross-examine Mr Forrester on his witness statement, even though Mr Forrester was present at the hearing.

The second defendant had filed a witness statement with the court the day before this hearing. Mr Kapoor, counsel for the defendants, requested an adjournment of the hearing as there had been a breakdown in communication between the defendants’ solicitors and the second defendant and consequently the second defendant was not present to be cross-examined on his witness statement.

Mr Marven objected to the second defendant’s witness statement being put in evidence. He reminded me that I made a direction on 9 January 2007 that:

“If either party wishes to adduce further evidence, such evidence must be filed and served by 28 February 2007.”

Mr Marven informed me that the second defendant’s witness statement was dated 18 May 2007 and had been served on the claimant’s solicitors on that date. Mr Marven submitted that the second defendant’s statement should not be admitted in evidence as it was served at a very late stage and in breach of my Order of 9 January 2007. His clients wanted to make investigations about what had been stated by the second defendant in his statement and the statement having been served so late, was prejudicial to his client. He objected to any adjournment.

I decided to refuse Mr Kapoor’s application for an adjournment and to disallow the admission of the second defendant’s evidence. I did so for a number of reasons. The defendants were in breach of the terms of my direction of 9 January 2007 and they gave no satisfactory explanation as to why the witness statement was served so late. In my judgement, I considered that the filing of this witness statement so late in the day was unfair on the claimant. Furthermore, the second defendant was not present for cross-examination at the hearing. Mr Hearsum, who was no longer employed by the defendants’ solicitors was present and ready to give evidence and in my judgment a disproportionate amount of costs would be thrown away if this hearing would be adjourned at such a late stage. Consequently I have not taken into account the second defendant’s evidence in reaching my judgement.

Both parties rely heavily on the dicta of Dyson LJ in Myatt.

Mr Marven referred to paragraphs 30 and 31 of the judgment in that the regulations have to be strictly interpreted. He further referred me to the guidance given by Dyson LJ in paragraphs 71 to 79 in Myatt. He submitted that in this case the defendants had no real knowledge and understanding of insurance matters and that Mr Hearsum does not appear to have specifically requested details of credit card insurance, motor insurance or household insurance. He submitted that the handwritten endorsement on the CFAs clearly indicated that the proper questions had not been asked and that the solicitors should have waited for the defendants to have responded to the request for a further search made at the meeting on 8 June 2005 before entering into the CFAs. The defendants were previously paying a private retainer to the solicitors and there was no immediate urgency for the CFAs to have been executed on 8 June 2005.

Mr Marven also referred to paragraph 74 of Myatt and said that this was a claim where there is likely to have been BTE insurance in place and the solicitors could not assume that the clients would have known the position.

Mr Marven’s general submission was that the defendants’ solicitors had failed to discharge their duty to take the requisite reasonable steps to establish the BTE position and had left it to the client to do so, which was contrary to the principles suggested in Myatt. The position could not have been properly considered by the solicitors prior to the entering into of the CFAs and consequently the regulations had been breached.

Mr Kapoor referred me to the final sentence of paragraph 71 in Myatt in which Dyson LJ stated:

“We emphasise that what is reasonably required of a solicitor depends on all the circumstances of the case.”

Mr Kapoor submitted that the defendants were intelligent business clients and it was reasonable for their solicitors to have formed the view that the answers given by the defendants to the questions relating to BTE insurance could be reasonably relied on. He submitted that during the five hour interview that Mr Hearsum had with the defendants they were subjected to cross-examination by Mr Hearsum about their understanding of the insurance position and that not only did they give satisfactory answers, but they also were able to give satisfactory reasons why they would not have had BTE insurance cover. The legal representative has to form a view that the clients are capable of understanding insurance matters and Mr Hearsum was able to form such a view in this case.

Mr Kapoor referred me to paragraph 74 of Myatt in which Dyson LJ suggests that the nature of the claim may be relevant. This was a commercial dispute and this was hugely relevant. This was a commercial dispute whereby sophisticated business clients would know whether they had legal expense insurance cover in respect of commercial disputes.

Whilst both parties accept that the principles enunciated by Dyson LJ are relevant in respect of all CFAs, nevertheless those principles are there by way of an attempt by Dyson LJ to give some guidance to the profession. The Court of Appeal emphasised that what is reasonably required of a solicitor depends on all the circumstances of the case.

There are in my judgment a number of reasons why the steps that should have been taken in Myatt do not necessarily have to have been followed in this case and I bear in mind that the judgment in Myatt came out long after the CFAs were entered into in this particular case. In Myatt the claims were being made by ex-miners and their solicitors were speaking to the claimants over the telephone with a checklist in front of them. The claim related to personal injuries and it is often the case that legal expense insurance is available by way of credit card insurance, motor insurance or household insurance, or even by membership of a trade union. In this particular case the defendants were facing what proved to be an unmeritorious claim for damages in respect of a dilapidations claim relating to their former occupancy of business premises which they had vacated more than two years earlier. Consequently one could not readily assume that BTE insurance cover would be available to the defendants through credit cards, motor insurance or household policies. Certainly legal expense insurance cover is available for commercial disputes but in my judgment a sophisticated businessman would know instantly whether or not such legal expense insurance cover is in place. A further difference with the situation in Myatt is that it was the unchallenged evidence of Mr Hearsum that he spent five hours with the defendants on 8 June 2005 discussing the claim and discussing the issue of insurance. This is far different to the telephone call being made to the claimants in Myatt.

I have little hesitation in forming the view that Mr Hearsum was a truthful and reliable witness. He immediately acknowledged that his attendance note of the meeting on 8 June 2005 was woefully inadequate and I accept what he states in that at the meeting on 8 June 2005 he discussed the insurance position in detail. I further accept that it was reasonable for him to rely on the answers given to him to the questions that he raised with the defendants with regard to BTE insurance. I accept his evidence that prior to the meeting on 8 June 2005 he had asked the second defendant to bring to the meeting any insurance policies relevant to the case. At the meeting the defendants were able to give him good reasons as to why they would not have BTE insurance cover in place, namely that this was a commercial dispute that related to a business that had ceased to trade over two years previously and secondly, they knew that the limit for notification of claims had long since passed. Either the defendants told Mr Hearsum this, as a result of their looking at the policies themselves, or the defendants were sophisticated businessmen who were fully acquainted as to what insurance cover they held. Furthermore, the defendants were sophisticated commercially enough to know that the cost of ATE premiums in respect of a dispute such as this would be prohibitively expensive.

I do not accept Mr Marven’s submission that Mr Hearsum’s evidence was inconsistent with the attendance note. Mr Hearsum readily acknowledged that the attendance note was “appalling” and I readily accept that Mr Hearsum had a good recollection of what transpired on 8 June 2005, and I accept his evidence about what actually happened. That in my judgment is more reliable than the unsatisfactory attendance note.

Mr Marven further submitted that the handwritten endorsement made by Mr Forrester strongly supports his submission that the BTE position had not been adequately checked. Again, I accept Mr Hearsum’s evidence that he had complied with the relevant regulation but that it was prudent to double check. Mr Forrester states that Mr Hearsum informed him that he was satisfied that there was no BTE insurance in place but that he had asked the defendants to double check the position. I see nothing improper or, indeed, suspicious about Mr Forrester endorsing the CFAs with the fact that the clients were going to check the position again, and in my judgment he did what a prudent supervisor should be doing, bearing in mind the consequences of failure to comply with the relevant regulation.

I am therefore satisfied that Mr Hearsum did consider his clients’ risks of incurring the liability for costs in respect of the proceedings, was insured against under an existing contract of insurance and accordingly that Regulation 4(2)(c) of the Conditional Fee Agreements (Regulations) 2005 has been complied with.