The Court of Appeal is to decide whether to strike down CFAs drafted by solicitors who do not declare an indirect interest - in the form of continued panel membership - when recommending a client take after-the-event insurance (ATE) provided by an introducing claims management company (CMC).

The move comes as the new CFA regime, aimed at stamping out technical challenges, swung into action on 1 November, while the Compensation Bill - laying out government plans to regulate claims farmers - was scheduled to be published this week.


The Gazette's sister publication, Litigation Funding, has reported that the appeal court granted leave to appeal Garrett v Halton Borough Council, a ruling from Liverpool County Court, which upheld the original decision that failure to declare the interest was a material breach of regulation 4(2)(e)(ii) of the Conditional Fee Agreement Regulations 2000.


The case could affect hundreds of personal injury firms; anecdotal evidence suggests costs assessments are already being adjourned pending a final decision. The Law Society has been granted to leave to intervene.


London firm Websters acted successfully for the claimant, who was introduced through a CMC, Ashley Ainsworth. It had advised her to purchase an ATE policy from Ainsworths, and explained it had no interest in the premium, although it was on the panel.


Judge Stewart found the likelihood that Websters would be removed from the panel in the event of not recommending the insurance to be a proper inference without evidence to the contrary, which was not provided. He considered this an indirect financial interest. Saying it was on the panel was not enough.


Though he emphasised that Websters had acted in a bona fide manner, the judge decided there had been a material departure from the regulations, meaning its costs were disallowed. As before Judge Stewart, leave to appeal to the Court of Appeal was granted on this point alone.


Gareth Ainsworth, a director of Ashley Ainsworth, said his company no longer uses the panel model but insisted it had never ejected any firm from the panel for not using its insurance, and firms had drawn on other ATE providers.


Websters partner Ian Austen-Jones said evidence to prove this had not been available at the time of the original hearing, and argued that, had it been, the deputy district judge would have come to a different decision. An application to submit fresh evidence has been made.


Mr Austen-Jones said that, at the time, the Ainsworths policy was a competitively priced and market-leading product - using it did not harm consumer protection.


Bolton firm Keoghs is acting for the defendant insurer and had no comment, as proceedings are ongoing.