Update: costs

It is not uncommon for a conditional fee agreement (CFA) in a personal injury claim to name the proposed defendant. But what happens if the claim is subsequently pursued against a different defendant? This is particularly common in highway tripping claims, where the defendant may initially be identified as the local authority but it subsequently emerges that the correct defendant is a utility company.

The problem arises from the fact that the CFA is the retainer. If something is wrong with the retainer then the successful claimant, or in reality, their solicitor, runs the risk of failing to recover any costs.

The argument can be run in one of two ways. First, if the CFA was entered into pre-1 November 2005 it will be governed by the CFA Regulations 2000. Regulation 2(1)(a) requires a CFA to specify 'the particular proceedings or parts of them to which it relates'.

Although there is no requirement to name the defendant in the CFA, if the agreement does, but not does name the correct one, this amounts to a breach of the regulations, invalidates the CFA and renders costs irrecoverable.

Second, a CFA has to be in writing under section 58(3)(a) of the Courts and Legal Services Act 1990, as substituted by section 27(1) of the Access to Justice Act 1999. If the CFA names the wrong defendant then it does not cover the claim against the correct defendant and, in the absence of another written retainer, no costs are recoverable.

Given how often this problem appears to arise, there has been surprisingly little case law on the issue, and most of it unreported. Although there are no binding decisions, it is worth examining the different approaches adopted.

Local authorities

An early example is that of Warlow v Pembrokeshire County Council (22 October 2005, unreported). The CFA, under the heading 'what is covered by this agreement', stated: 'Your claim against Welsh Water for damages suffered on approximately 10 May 2000.' The claim was, in fact, pursued against the local authority. The challenge to the CFA was brought principally on the basis of a breach of regulation 2(1)(a).

District judge Godwin held: 'I do not consider that, in this case, there has been a breach of the regulations. I take the view that the wording of the agreement sufficiently complies with regulation 2(1)(a) by stating that the claim was to be for damages for personal injury suffered on approximately 10 May 2000.

'Those were the particular proceedings and I am of the view that the phrase 'against Welsh Water' was superfluous and does not amount to a departure from the requirements of the regulations.'

In the alternative, following Hollins v Russell [2003] EWCA Civ 718, he would have held any breach to be immaterial. The CFA was therefore found to be valid.

Subsidiary companies

Another early example is that of Brierley v Prescott [2006] EWHC 90062 (costs). The facts of this case were unusual. The claimant was injured in a road traffic accident by a Hertz hire car driven by the defendant. The defendant's third party liability was insured by a company within the Hertz group. In due course the claim was dealt with by a further division of Hertz who, ultimately, paid damages to the claimant.

The CFA provided that it covered: 'Your claim against Hertz UK Limited Car Hire for damages for personal injury suffered on 7 January 2000.'

Although proceedings were initially issued against 'Hertz (UK) Limited', on the pleaded basis that Mr Prescott was driving the hire car as servant or agent of Hertz, when the error of this reasoning was pointed out it was agreed that Mr Prescott should be substituted as defendant. The challenge to the CFA was brought solely on the basis that it did not cover the claim against Mr Prescott. The CFA regulations argument was not raised.

Master Gordon-Saker found that this was 'simply a matter of construction of the agreement'. He concluded: 'In my view the words 'your claim against Hertz UK Limited Car Hire for damages for personal injury suffered on 7 January 2000' meant 'the claim for damages arising out of the accident and which was being handled by Hertz' and therefore must be taken to include the claim that was subsequently issued against Mr Prescott.

'The intention of the parties is obvious. The 2002 agreement was to provide funding for the continuation of the claim which had been the subject of correspondence between Pinto Potts and Hertz for the preceding three years. There was only ever one 'claim'.'

It can immediately be seen that this case is distinguishable from the majority of claims where this issue arises. It will be rare in the extreme that the 'wrong defendant' named in the CFA will actually be dealing with the claim and pay any damages.

Double defendants

A further case on the issue is that of Law v Liverpool City Council and Berrybridge Housing Association [2005] EWHC 90020 (Costs). The CFA, under the heading 'what is covered by this agreement', stated: 'Your claim against Liverpool City Council for damages or personal injury suffered on 26 March 2003'. After proceedings had been issued against Liverpool City Council, it was discovered that ownership of the accident site had transferred to the housing association. The pleadings were subsequently amended to add them as second defendant and the claim settled with both defendants acknowledging a liability in principle to pay costs.

The district judge at first instance held there was no valid CFA covering the work against the second defendants. However, he held that there was a valid retainer to cover this work on the basis of 'a retainer with implied terms as to payment.' This was on the basis that instructions would have been sought before adding the second defendant. He therefore allowed base costs but with no success fee.

The decision as to whether there was a valid (implied) retainer was not cross-appealed. This might be thought odd because one suspects the client would have been surprised, to say the least, if the claim had ultimately failed - had the solicitors then sought their costs on the basis that they had not, contrary to what the client presumably thought, been acting on a 'no win no fee' basis but had expected payment in respect of the claim against the second defendant regardless of the outcome. It should not be assumed another court would have implied an ordinary retainer based on these facts.

In any event, the claimant appealed the finding that the CFA did not cover the claim against the second defendant. His Honour Judge Stewart QC dismissed the appeal and made the following observations: 'I start off from the strong viewpoint that I do not see how a contract which covers a claim against Liverpool City Council can possibly be construed as a contract to bring a claim against the second defendant. The ordinary and natural meaning of the words, however purposive a construction one uses, does not in my judgment permit this.

'If the CFA as drafted is such that it can include a claim against any potential defendant, then the present problem would not arise'¦The fact remains that on this CFA, the second defendants are not and were not covered by it and therefore, subject to the further points which I will go on to consider, it seems to me the success fee is not recoverable.'

He went on to hold that a new CFA should have been entered into or the existing one properly varied in writing and signed if the claimant and solicitor wished to have a CFA cover the claim against the second defendant.

Uncertain ground

We then come onto the more recent decision of Scott v Transport for London, 23 December 2009, unreported. The CFA in question stated it covered: 'your claim against Lambeth Council for personal injury suffered on 25 April 2003'. Subsequently it was recognised that the correct defendant was actually Transport for London (TfL) and that was who proceedings were issued against.

When the matter came before Judge Lethem he disallowed all costs on the basis that there 'was no valid retainer between the solicitors and the claimant'.

The decision was appealed to Judge Hollis, whose judgment focuses on the fact that there was a clear change in instructions as to which party to pursue between the signing of the CFA and the issuing of instructions. Hollis J held: 'Was that change one that could be affected without prejudicing or undermining the legality of the conditional fee agreement under the regulations? There is absolutely nothing in the regulations that required the parties to name the defendant in the agreement.

'The fact that the proposed defendant, Lambeth Council, was specified in the agreement, and that the instructions changes does not, in my view, nullify the agreement, which continued to cover litigation for the personal injury suffered on 25 April. The change is something that would be perfectly acceptable under these regulations as the defendant does not have to be named.'

The logic behind this line of reasoning is not entirely clear. The challenge does not appear to have been based on the argument that the CFA was inherently defective. It would have been a perfectly valid agreement in relation to a claim against Lambeth Council. That, however, is no answer to the question as to whether the CFA also covered a claim against any other potential defendant.

As both parties had recognised, the matter was 'essentially one of contractual construction'. The fact that there would not have been a breach of the CFA Regulations if no defendant had been named does not deal with the construction problem where a specific, and incorrect, defendant is named.

The judge went on to consider whether there had been a termination of the CFA under paragraph 3(j) of the standard Law Society conditions which defined 'lose' as: 'The court has dismissed your claim or you have stopped it on our advice'. He held: 'It is correct to say that the claim was never pursued against the London Borough of Lambeth, but the claim itself was not stopped on their advice. The claim was, as it were, redirected against TfL.'

It is questionable whether a more detailed legal analysis would have concluded that a claim against party A is exactly the same legal 'claim' if it is 'as it were, redirected' against party B or, rather, a different claim entirely. The appeal was allowed.

These decisions leave the law in this area uncertain. Only two definite lessons can be learnt. First CFAs are generally best drafted as widely as possible. Second, paying parties should be alert as to the precise wording of a receiving party's CFA to see whether a potential challenge exists.