The Law Society's model conditional fee agreement (CFA) is defective, the supreme court costs office has ruled, in a judgment on a technical challenge, which it admits could affect 'hundreds of thousands' of cases.

However, Chancery Lane has urged firms not to panic as the court said that the CFA is still enforceable.

Deciding on costs in Ghannouchi v Houni last week, Master Seager Berry said the model did not accurately reflect the wording of regulation 3 of the CFA regulations 2000, which concerns recovery of costs from the client where they are agreed by the parties or assessed.

The CFA states that the requirements in regulation 3 apply only to the success fee, but the court ruled that they applied to all fees.

Master Seager Berry admitted this could have 'an adverse effect on the hundreds of thousands of occasions on which the Law Society's model agreement has been used or adapted'.

However, he also looked to last year's test in Hollins v Russell, where the appeal court said a CFA would only be scuppered if the defect had a materially adverse impact on the client or on the administration of justice.

That did not apply in this case, so the CFA was enforceable.

The Society expects this to apply in all cases and suggests that willing parties should argue the point if it is rasied.

The Society denied that its model was defective and said it hoped the appeal court would soon get an opportunity to rectify the position, stressing that the decision was not binding on other courts.

Law Society chief executive Janet Paraskeva urged solicitors who encounter similar challenges to contact Chancery Lane so that it can press for a 'clear and fair interpretation' of the regulations.

'This decision can only serve to add uncertainty to the costs regime,' she warned.

Peter Carter-Ruck managing partner Cameron Doley, whose firm acted for the claimants in Ghannouchi, said it was difficult to predict how many other technical challenges would now follow.

'It seems [defendants] make any challenges that they might possibly get away with,' he said.

But Neil McLaughlin, costs group head at the Forum of Insurance Lawyers, agreed with the judge that the defendant firm in this case - London's Dean & Dean - was entitled to bring the challenge, especially as the costs totalled almost 1.4 million.

'What the Court of Appeal was trying to say [in Hollins] was, "If you have a proper challenge then bring it, but don't bring a challenge that we believe to be frivolous", 'he argued.

By Paula Rohan