Kashmiri v Ejaz – CFAs in commercial cases [2007] EWHC 90074 (Costs) SJ 15 June 2007

The steps set out in Myatt v National Coal Board to ensure compliance with the Conditional Fee Agreements Regulations 2000 concerning the existence of legal expenses insurance do not have to be followed in all cases.

Myatt concerned an employer’s liability claim for noise-induced hearing loss (NIHL). The solicitor in question followed her firm’s standard procedure which involved asking the claimant whether he had insurance or trade union membership which would entitle him to legal expenses insurance in respect of the contemplated claim. The problem with this wording was that it required the claimant to understand the policies. The solicitor should have looked at the policies in order to consider whether they covered the claim in question. In addition, the solicitor failed to check any relevant policies and to ask about relevant insurance for other members of the household. The effect of this was a substantial breach of reg 4(2)(c) of the CFA Regulations and the CFA was therefore unenforceable.

The present case concerned a claim for damages in respect of a dilapidations claim relating to the lease of business premises. The claim was eventually discontinued by the claimant who agreed to pay the defendants’ costs of the action. The defendants had entered into a CFA during the proceedings. At detailed assessment the claimant alleged that reg 4(2)(c) had not been complied with.

The defendants’ initial meeting with their lawyers had lasted five hours. During the meeting, BTE insurance cover was discussed. The claimant relied upon a handwritten endorsement on the CFA which read: "Client advised re [before the event insurance]. He is investigating availability of Pre-Event insurance and will revert if not available. Review this on 29 June. MH [the clerk conducting the case] to write letter to client."

Ruling that there had not been a breach of the CFA Regulations, Master Simons said: “Certainly legal expense insurance cover is available for commercial disputes but in my judgement a sophisticated businessman would know instantly whether or not such legal expense insurance cover is in place.”

Comment: this issue of what steps are necessary to check whether BTE insurance exists in the context of a commercial claim has not previously arisen since the cases to date have invariably concerned injury claims. The conclusion reached seems sensible, and indicates that the steps a solicitor must take depend upon the sophistication of his client. The judge was clearly influenced in his decision by the fact that the defendants’ solicitor had spent five hours with his clients discussing the claim and insurance, whereas in Myatt the solicitor spent 30 minutes going through a checklist with her client on the telephone. He had asked them to bring any policies with them and at the meeting they had explained that the claim was not covered by insurance since the dispute related to a business which had ceased to trade over two years previously and the period for notifying claims had passed. The handwritten endorsement was a prudent double check but not necessary given that the defendants were sophisticated businessmen.

For a recent example of a successful challenge to a CFA on this ground, see Berry v Spousals (Midlands) Ltd. Disclosure of privileged documents where a breach of reg 4(2)(e) was suspected (duty to declare an interest in the insurance policy) was refused in London & Cambridge Properties Ltd v Bradbury (CC Judge Thorn QC 2 February 2007).