COMPLIANCE: Law Society warns Court of Appeal ruling will give insurers windfall profits



There is no need for a client to suffer actual detriment for a conditional fee agreement (CFA) to be defective, the Court of Appeal said last week in a decision that will rock the personal injury world.



The much-awaited ruling in the joined cases of Garrett v Halton BC and Myatt v National Coal Board was uncompromising on issues of compliance in relation to CFAs entered into before the new regime introduced on 1 November 2005.



Lord Justice Dyson rejected the argument that the court's 2003 ruling in Hollins v Russell established that the consequences of a breach of the CFA regulations are relevant to its materiality.



He said: 'If it had been intended that a CFA should only be enforceable where the client suffered actual damage, it would have been easy enough so to provide... In our view, it is fallacious to say that a breach is trivial or not material because it does not in fact cause loss to the client in the particular case. The scheme has the wider purpose of providing for client protection (as well as the proper administration of justice).'



In Myatt, the court upheld the decision that asking the wrong questions about the existence of before-the-event (BTE) insurance was a material breach of the regulations, even though it later transpired there was no suitable BTE. It offered pointers, but not 'rigid guidance', on how far solicitors should go in checking for BTE cover.



In Garrett, it held that firms must tell clients they have an indirect financial interest in recommending a referring claims farmer's after-the-event insurance - namely, staying on their panel.



The Law Society intervened in the cases. A spokeswoman said: 'We are very disappointed. It is perverse to give insurers a windfall profit at the expense of claimants' solicitors because of a technical failure to comply with complex and ambiguous regulations.'



A statement from the Association of Personal Injury Lawyers said it may trigger a new costs war. 'We are now relying on insurers not to undertake "fishing expeditions" with the aim of invalidating a CFA. Following Lord Justice Dyson's comment that "any breach" rather than a "serious breach" (as ruled in Hollins) should render the CFA invalid, there are now effectively two conflicting Court of Appeal judgments.'



James Webster, senior partner of London firm Websters - the claimant firm in Garrett - said he has applied for leave to appeal to the House of Lords so that it could clear up this conflict.



However, Neil McLaughlin, president of the Forum of Insurance Lawyers, said the rulings vindicated insurers' oft-criticised pursuit of compliance issues. 'Since 2000, we have seen CFAs adopted as a matter of course across many practices, with little or no consideration of alternative funding,' he said.



Neil Rose