Tankard v John Fredricks Plastics Ltd

This Court of Appeal considered the proper construction of regulation 4(2)(e)(ii) of the Conditional Fee Agreement Regulations 2000 and whether solicitors had an "interest" in recommending a particular after-the-event (ATE) insurance policy under the Accident Line Protect (ALP) scheme which ought to have been disclosed to clients. The court adopted a purposive test: a solicitor has an "interest" for the purposes of regulation 4(2)(e)(ii) if a reasonable person, informed of the relevant facts, would think that the existence of that interest might affect the advice given by the solicitor to the client.

Applying that test the court held that membership of the ALP scheme, the limited referrals generated by ALP, and the possibility of modest rebates and ancillary benefits did not amount to an interest that a reasonable informed person would think might affect the solicitor's advice. On those facts the solicitors were not required to make the detailed disclosures contended for by the defendants and the CFAs were not unenforceable for failure to disclose such an interest.

Background and parties

• The appeals arose from three linked costs disputes (Tankard, Hibberd, Jones) in which claimants had entered into conditional fee agreements (CFAs) with their solicitors and the solicitors had recommended ATE insurance under the ALP scheme.
• The defendants argued the solicitors had an "interest" under regulation 4(2)(e)(ii) that was not disclosed and that the CFAs were therefore unenforceable so that success fees and profit costs could not be recovered from defendants.

Procedural posture

• These were first appeals to the Court of Appeal from decisions of two district judges and a costs judge (appeals brought from Liverpool County Court Claim No 7LV50506, High Court Costs Office HQ05X00067 and Southampton County Court Claim No 6SO08237) and were heard with permission as important costs-law questions remained unresolved.

Issues framed

1. What is the correct meaning of "interest" in regulation 4(2)(e)(ii) of the Regulations?
2. Did the solicitors in each case have an interest that required disclosure?
3. What, if anything, must a solicitor disclose to satisfy regulation 4(1)(a) and (2)(e)(ii)?

Court's reasoning

• The court examined the regulatory purpose of the Regulations (consumer protection) and adopted a test, consistent with Garrett and Hollins, that an interest exists if a reasonable informed person would think the interest might affect the solicitor's advice.
• The court distinguished Garrett on its facts: membership of a panel will not always amount to an interest; it depends on the factual context including the significance of referrals, rebates or other benefits to the firm.
• Applying that test to the ALP scheme, the court found the ALP benefits were primarily the quality of a commercially acceptable ATE policy, referrals were minimal in the firms' turnovers, and any rebates would be a minute fraction of income; on those facts no reasonable informed person would think the solicitors' advice might be affected.
• The court held that mere statement that a solicitor "has an interest" is not adequate disclosure; the client must be told the nature of the interest if one exists so as to permit an informed decision. The court also observed that a clear conflict between a prior disclosure and an express statement in the CFA that no interest exists would defeat adequate disclosure.

Relief sought and disposition

• The defendants sought declarations that the CFAs were unenforceable. The court dismissed that challenge in Hibberd and allowed the solicitors' appeals in Jones; in Tankard the solicitors had conceded an interest below but the Court permitted them to withdraw that concession so the matter could be dealt with on its merits.

The appeals were allowed in part. The court held that, for regulation 4(2)(e)(ii), an "interest" exists only if a reasonable person with knowledge of the relevant facts would think the interest might affect the solicitor's advice. Applying that test the Court of Appeal concluded that the solicitors in the three appeals did not have an interest of that kind under the ALP scheme and accordingly were not obliged to make the detailed disclosures contended for; therefore the CFAs were not rendered unenforceable on the grounds argued. The court also held that a bare statement that a solicitor "has an interest" is insufficient disclosure and that disclosure must explain the nature of any interest so the client can make an informed decision. In Tankard the court permitted the solicitors to withdraw their earlier concession that they had an interest so the case could be determined on the merits.

Appeals to the Court of Appeal (Civil Division) from decisions taken in the Liverpool County Court (Claim No 7LV50506), the High Court of Justice, Supreme Court Costs Office (Case No HQ05X00067) and the Southampton County Court (Claim No 6SO08237). Permission was given for these first appeals from two district judges and a costs judge to be considered by the Court of Appeal. Reported here at [2008] EWCA Civ 1375.