Tankard v John Fredericks Plastics Ltd - Fawcett Old Ltd and another v Hibberd
1 January 2009
[2009] 1 WLR 1731; [2009] 4 All ER 526
Citation: [2008] EWCA Civ 1375
Facts:
In these three test cases which were heard together, each of the claimants' solicitors had recommended that the client take out a policy of insurance with Accident Line Protect (ALP) prior to entering into a CFA with their clients. Each CFA pre-dated the revocation of the CFA Regulations 2000. The CFAs all included the standard ALP declaration that the solicitors had no interest in recommending the policy. It was a term of the ALP scheme that the solicitors should insure all their CFA cases with ALP (unless there was BTE or some other tie, such as a contract with a referrer), and the solicitors risked being removed from the panel if they did not comply with that term. Benefits of the ALP scheme for solicitors included delegated authority to issue ALP insurance, a right to receive referrals from AL, access to a disbursement funding facility and ancillary services such as training, marketing and administrative support. Solicitors were entitled to rebates of part of their membership fee if more than a certain number of policies were issued over a particular period. The solicitors in the 3 cases earned between 0.15% and 4.57% of their turnover from ALP referrals. The defendants argued that the solicitors had a declarable interest which they had failed to declare. The decisions of the courts below went either way.
Held:
(1) For the purposes of regulation 4, a solicitor has an interest if a reasonable person with knowledge of the relevant facts would think that the existence of the interest might affect the advice given by the solicitor to his client. - This test was appropriate because it was consistent with the language of Reg.4 construed with due regard to its legislative purpose, viz the protection of the client.
(2) The ALP scheme was very different to the claims farming scheme under consideration in Garrett v Halton BC [2007] 1 WLR 554. It was a membership scheme, the relationship between the solicitors and the insurance provider was different and these were not cases in which referrals played anything like the same part in the solicitors' business as they did in Garrett. The overriding consideration in these 3 cases was the quality of the policy. That was why the solicitors recommended the policy. In the absence of particular facts such as, say, very significant dependence on the scheme for a firm' revenue, there is no conflict of interest between the solicitors and their clients on the above test.
(3) Accordingly, in these 3 cases, applying the test in (1) above, the solicitors did not have a declarable interest in either the exclusivity requirement of the scheme, the right to receive referrals, the right to rebates on membership fees if enough policies were taken out or the other benefits of the scheme. All the CFAs were enforceable.
(4) The remaining points are obiter in the light of the above conclusions, and would only apply in circumstances where there was a declarable interest.
(5) If a solicitor has a declarable interest it is not enough for him to say so without identifying the nature of the interest.
(6) The Court did not propose to follow the obiter comments made in para. 103 of Garrett, in which it had been said that a solicitor who complied with the obligation under the Solicitors Financial Services (Conduct of Business) Rules 2001 would comply with Reg. 4(2)(e)(ii). The obligation under the 2001 Rules is that a solicitor who is contractually obliged to recommend a particular policy must disclose this fact to his client. Such a declaration would be insufficient to disclose the interest of the solicitor in the recommendation.
(7) Further where, as had happened in two of the cases under appeal, there was some sort of disclosure statement but there was also a statement in the CFA that the solicitor had no interest in the recommendation, the obligation under Reg.4(2)(e)(ii) would not be satisfied. The disclosure has to be clear in order to protect the client.
Comment:
The court was clearly unhappy about the continuation of satellite litigation over CFAs several years after the revocation of the regulations which gave rise to the costs war, but there must be doubt as to whether this judgment will have put a stop to it. In this commentator's view that is because the problem is built into the language of the governing statute. Whilst the majority of solicitors who used ALP for their CFAs will be sleeping a lot more easily, this judgment throws up a number of very difficult issues, of which the following are the more obvious examples:
- How does it apply to true claims farming schemes?
- The need to decide whether a firm has a 'very substantial dependence' on referrals is likely to lead to far more frequent factual inquiries on detailed assessment, with evidence and the examination of witnesses.
- The holding that a clear declaration of any interest is required (so that an inaccurate statement in a CFA that the solicitor has no interest will not suffice) will put great difficulties in the way of solicitors who do, in fact, have a declarable interest since, unless the firm was in receipt of commission, the majority of CFAs said that the solicitor had no interest.
- If 4.57% of a firm's income can be ignored as an interest, can commission continue to count as a declarable interest?
Jeremy Morgan QC appeared for the Defendant in Jones. Benjamin Williams appeared for the Claimant in Hibberd. Robert Marven appeared for the Defendants in Hibberd and Tankard.