Court holds Law Society's CFA model agreement falls foul of regulations

The prospect of a new wave of technical challenges to 'no win, no fee' agreements was raised last week, when the courts held that the Law Society's own model agreement fell foul of the 2000 CFA Regulations.

In Ghannouchi v Al Arab, the Supreme Court Costs Office (SCCO) ruled that the Law Society's current model Conditional Fee Agreement (CFA) did not meet one of the requirements of the regulations. Chancery Lane responded by saying that it took issue with the ruling.

"This decision can only serve to add uncertainty to the costs regime," commented Janet Paraskeva, Law Society Chief Executive. "We hope the Court of Appeal will soon be given the opportunity to rectify the position." The dispute concerns the interpretation of regulation 3(2)(b) and (c) which concerns the recovery of money from the client where either there has been an agreement on costs or there has been a detailed assessment. "It has always been the belief that the effect of both of them has been if you agree or, as a result of the detailed assessment, a success fee less than the one you have claimed then you can't actually claim the rest from the client without going to the court," a Law Society spokesman explains. "That has been the view that everyone so far has taken."

"What has now been decided is that view doesn't just apply to the success fee, it applies when there is an agreement to any part of the costs," he continued. "As a result of that, the court is saying that our model agreement doesn't accurately reflect the regulations and therefore there is a breach." The apparent defect also exists that in the model agreements issued by other professional bodies, such as the Bar Council. According to the Law Society, the Department of Constitutional Affairs took the same view when they published their paper on Simplifying CFAs consultation paper last year.

The SCCO went on to apply the principles set out by the Court of Appeal in Hollins v Russell last year and ruled that the defect was 'not material' and the claimant was still entitled to recover their costs from the losing defendant. However, the ruling in Ghannouchi is leapt upon by defendant insurers "as a pressure point" to challenge claimants' costs in future cases. The Law Society is calling on solicitors to contact them if they are challenged in this way.

The ruling "tells us what we already knew", commented Jeff Zindani, managing director of online claimant PI consultancy Forum Law. "The drafting of these regulations originally were so imprecise it has taken the courts this length of time to work through the meaning behind the poor draftsmanship really," he said. "It's like chasing a moving target."