CONDITIONAL FEE AGREEMENT UPDATE
There has been a surprising number of recent decisions concerning conditional fee agreements, and covering assignment, human rights and recoverability and the interplay with legal aid and the ability to sever part of an agreement to make it lawful.
Conditional Fee Agreements and Assignment
Please note that the Budana case reported below has now been leapfrogged to the Court of Appeal but no date has yet been set for the hearing.
In Budana v Leeds Teaching Hospitals NHS Trust (4 February 2016)
DJ Besford sitting in Kingston-upon-Hull County Court had to rule on the position where a pre-Jackson Conditional Fee Agreement was transferred from one firm to another when the original firm told its client that it was no longer conducting personal injury work.
Here the original firm sent a letter to its client on 22 March 2013, just before the change in the law on 1 April 2013 whereby any new CFAs could not provide for a recoverable success fee, saying “we have decided to stop handling personal injury litigation”.
The letter explained that a process had been put in place to transfer the case to another firm of solicitors which would continue to act on the same Conditional Fee Agreement.
The court held that the wording of the letter was unambiguous and it had terminated the retainer between the solicitor and client and there was nothing to suggest that they would continue to act pending the client’s instructions.
Consequently there was nothing to transfer or to be assigned.
A second Conditional Fee Agreement, entered into with the new firm of solicitors on the basis that it would only apply if there was a problem with assignment of the first Conditional Fee Agreement, was found to be valid and thus the claimant was entitled to recover the base fees disbursements and VAT in relation to the new solicitor’s costs but not those of the original solicitor.
The judge gave permission for an appeal and a cross-appeal and it is understood that the paying party may ask for the matter to be leapfrogged to the Court of Appeal.
The judge then went on to consider whether it was possible to assign the Conditional Fee Agreement if the retainer had not been terminated by the first set of solicitors.
The judge held that he was bound by the decision of the High Court in
although he commented that there was there was much force in the arguments of the defendant that Jenkins had been wrongly decided.
The judge noted that “the facts in Jenkins are far removed from the commercial wholesale disposal of clients as in this case” but noted that the higher authority “clearly permits the transfer of a CFA between firms” and must be followed.
Spot-on on all points
Other than for exceptional reasons a firm of solicitors cannot simply decide to stop doing a particular area of work and leave all of its clients in the lurch.
Why could the firm not have instructed appropriately qualified counsel to assist in the run-off of its personal injury cases? Why did the firm not, for example, give three months’ notice to clients and thus give them a chance to look around for other solicitors?
The suspicion here is that the first firm of solicitors simply made a commercial decision to sell its personal injury workload and it is unsurprising that in those circumstances the court has not allowed it to recover any fees.
The judge is also right, both in following Jenkins, but suggesting that it may be wrongly decided and thus giving leave both for an appeal and a cross-appeal.
This decision has been subject to criticism, virtually all of it ill-informed the decision is correct.
The problem is easily avoided by entering into an agency arrangement – see my blog Assignment of Conditional Fee Agreements: Unified.
Unenforceable CFA Does Not Render Underlying Retainer Unenforceable
the Chancery Division of the High Court considered a somewhat complicated set of affairs but had to decide the question as to whether an unenforceable Conditional Fee Agreement rendered the underlying retainer unenforceable.
Here the client and the firm of solicitors had entered into a litigation retainer which provided that the solicitor’s fees would be calculated on the basis of an hourly rate and the claimant won and the other side appealed.
The claimant and the solicitors then entered into a further agreement which provided that in return for working on the appeal the solicitors will be entitled to all costs recovered from the other side in the appeal and the proceedings below, if the case was won.
This was known as the 2011 agreement and it was accepted that it was a Conditional Fee Agreement with a success fee but that it failed to comply with Section 58(4) (b) of the Courts and Legal Services Act 1990 in that it did not specify the amount of the percentage increase.
The judge held that the 2011 agreement was concerned only with work relating to the appeal and was not intended to replace the original retainer and nor was it a collateral contract but rather it was intended to vary the retainer.
It was possible to run a “blue pencil” through the 2011 agreement and thus sever part of it without modifying the remaining retainer in relation to the non-appeal work.
The judge held that the illegality in the form of the Conditional Fee Agreement was neither criminal nor immoral and therefore there was no public policy objection to severing it.
The judge therefore held that the solicitors were not entitled to charge the appeal work carried out after entering into the 2011 agreement but could charge for the non-appeal related work which fell within the scope of the original retainer, even if that non-appeal work was done after the 2011 agreement had been entered into.
Recoverability of additional liabilities and human rights
the Senior Courts Costs Office rejected submissions by a publisher that the recoverability of additional liabilities in privacy proceedings was unlawful and placed the United Kingdom in breach of its obligations under the European Convention on Human Rights and the court in breach of its obligations under the Human Rights Act 1998.
Mirror Group Newspapers contended that a costs order in favour of the receiving party could not include a provision requiring it to pay the After-the-Event insurance premium and a success fee as any such order would unlawfully interfere with its Article 10 right to free expression.
Mirror Group Newspapers relied on
where the European Court of Human Rights held that recoverability was incompatible with Article 10 and also Section 6 of the Human Rights Act which requires courts not to act in a way that is incompatible with the Convention.
The court held that it did not have jurisdiction to make a declaration of incompatibility but did have a discretion to allow or refuse recoverability of the additional liabilities.
It held that it was bound by Campbell v MGN  UKHL 22 to conclude that recoverability would not be a violation as submitted.
The court noted that the After-the-Event insurance point did not arise for consideration in Campbell v MGN but did arise in
Coventry v Lawrence  UKSC 50 in the context of Article 6.
There the Supreme Court held that the recoverability of premiums under Section 29 of the Access to Justice Act 1999 was part of the same regime as the recoverability of success fees and therefore did not infringe Article 10 rights.
The court here followed that decision.
The decision confirms the rule of law that precedent law in England and Wales is not, save in exceptional circumstances, dis-applied where there is an inconsistent decision of the European Court of Human Rights – see
Legal Aid and Switching to CFA
the Senior Courts Costs Office held that the claimant’s decision, effectively that of their solicitors, to abandon legal aid in favour of a Conditional Fee Agreement backed by After-the-Event insurance was not made on the basis of adequate advice and was not made on a fully informed basis and was more to the claimant’s disadvantage than to her advantage and it had not been a reasonable decision.
Consequently the success fee and the ATE premium were not recoverable under CPR 44.4 from the losing defendant.
Here the legal aid certificate which had been in place since 3 March 2010 was discharged on 25 February 2013 and on the same date a Conditional Fee Agreement was entered into.
That Conditional Fee Agreement was backed by an After-the-Event insurance policy which is dated 5 April 2013 although the insurer had agreed to provide cover on 26 March 2013. On that point the SCCO held that the insurance policy had been taken out prior to the Jackson deadline of 1 April 2013 and therefore was, in principle, recoverable.
Like all such cases this one depends upon its facts but there are some important points of principle that emerged.
The claimant, effectively the claimant’s solicitors, argued that the Legal Services Commission would not allow experts to charge more than £180.00 per hour to be instructed and would not allow the claimant’s solicitors to top up those fees. They formed the view that they required experts who charged significantly more than that and they could not find suitable experts who would work for those rates.
The court found that that was factually incorrect and that the solicitors, Slater and Gordon, had themselves been paying experts on this case higher than those rates and furthermore that it was not the invariable rule that experts charging more than £180.00 per hour could not be instructed and Slater and Gordon had not sought the Legal Services Commission’s permission on this particular case.
Thus that ground for switching from legal aid to a CFA was rejected.
The solicitors also argued that the client would be at risk of paying the solicitor’s solicitor and own client costs that were not recoverable from the other side and these would be deducted by way of the legal aid statutory charge, whereas the CFA Lite that they had entered into meant that the client would not have to pay any legal costs out of damages.
Here the court pointed out that the solicitors were free to waive their additional costs under the statutory charge and indeed had done just that in this case. Therefore switching to a CFA Lite did not achieve anything in relation to deduction of costs from damages that could not have been achieved under the legal aid certificate and indeed was so achieved in this case. Thus that ground was also rejected.
The claimant’s solicitors also relied on the protection that After-the-event insurance gave against the costs incurred in failing to beat a Part 36 offer, which protection was not available under a legal aid certificate. The court accepted that point but found that the solicitors had not advised the claimant in relation to this difference in relation to Part 36 and in the particular circumstances of this case that risk was low and had not been a factor in the decision of the solicitors to advise that switching to a CFA/ATE was the right thing to do.
Consequently the court rejected this ground as well.
The court also held that the solicitors had not adequately advised the claimant as to the risk that part or all of the ATE premium may be disallowed and that she would be then liable for paying that premium or part thereof out of the damages if the case was successful.
Of particular relevance was the fact that the solicitors had failed to advise the claimant as to the benefits of a pre-Jackson Conditional Fee Agreement and a post-Jackson Conditional Fee Agreement.
In a post-Jackson CFA, where there is no success fee recoverable from the other side, the client gets a 10% uplift on damages under the principles set out in Simmons v Castle  EWCA Civ 1039. The claimant’s solicitors put this between £10,000.00 and £12,000.00 and the defendant put it at £15,000.00.
The failure to explain this to the client also formed inadequate advice and meant that the claimant’s decision was not made on a fully informed basis.
Both sides and the court appear to have failed to appreciate that had legal aid remained in place, as compared with a pre-Jackson CFA, then the claimant would have had the benefit of Qualified One-Way Costs Shifting. The client would also have enjoyed that benefit with a post-Jackson CFA.
It is clear that the solicitors advising the claimant in this matter failed to give proper advice and indeed appeared not to understand to any great extent the law in relation to Conditional Fee Agreements and legal aid and the Simmons and Castle uplift and Qualified One-Way Costs Shifting.
The lost ATE insurance premium itself was over £70,000.00 and the success fee a further £25,000.00 meaning that the sum involved was £95,647.72.
Time and time again I see solicitors dealing with costs and funding matters involving huge sums of money and yet doing it without any specialist advice whatsoever.
Where damages are that sort of sum they will take extensive advice from counsel and yet on costs issue they will deal with matters inadequately themselves.
the Senior Courts Costs Office found that the decision of the claimant’s solicitors to switch from legal aid to a Conditional Fee Agreement backed by After-the-Event insurance shortly before 31 March 2013 deadline for recoverability of additional liabilities was unreasonable and therefore the defendant did not have to pay the success fee or After-the-Event insurance premium.
Here the claimant’s solicitors had put forward the benefits of switching as being that ATE would protect the client from the consequences of failing to beat a defendant’s Part 36 offer, whereas legal aid would not, and the general uncertainty about the Legal Aid Agency continuing to fund any particular claim.
The defendant argued that the decision was unreasonable given the stage that the case had reached by then and also sought to distinguish
on the ground that there the solicitors were offering CFA Lite, which meant that the client would not have to pay anything and also that at that time the Simmons v Castle 10% uplift was not available whereas it now was to a legally aided client, but not to a client who had a Conditional Fee Agreement and/or After-the-Event insurance if either of those was recoverable.
It was common ground in this case that the client had not been advised concerning the potential Simmons v Castle general damages uplift. The defendant relied on
where the SCCO had held that the failure to advise in relation to the Simmons v Castle Uplift and the failure to advise of the protection of Qualified One-Way Costs Shifting in legal aid cases, but not where there was a recoverable success fee or ATE premium, meant that the claimant had not been properly advised and could not have made a reasonable choice to change funding arrangements.
Again it was common ground that the whole issue of Qualified One-Way Costs Shifting had not been considered here.
Here the Simmons v Castle uplift was potentially worth £17,500.00 as general damages have been valued at £175,000.00.
In this case the court said that there were good arguments on both sides but it was the absence of advice concerning the Simmons v Castle point which weighed more heavily than any other point with the court – see paragraph 54.
The court also held that the adequacy of the solicitor’s advice to the client can have a bearing upon the amount that it is reasonable for the client’s opponent to pay in costs whether the opponent is the paying the party and pointed out that any other finding would effectively allow a solicitor to benefit from his or her own wrongdoing, in that the client would be persuaded, on the basis of bad advice, to switch to a CFA even though disadvantageous to the client but advantageous to the solicitor who then gets the success fee.
The court held that the solicitor should have said to the client:-
“if you move to a CFA you will forfeit immediately the right to an additional 10% of the general damages you recover, which we estimate could £175,000, so as much as £17,500”.
Failure to do so meant that the advice was unreasonable.
Given this and the Ramos decision, which seems to me to be absolutely correct, there are some big firms of solicitors who might wish they had spent £200.00 on one of my Jackson courses, which would have saved them hundreds of thousands, if not millions of pounds.
A second point arises from these cases – in each case the court has found that there was no entitlement to recoverability of the success fee or ATE premium.
Given that finding general damages should indeed have been 10% higher in each case as Simmons v Castle applies where there is no recoverability.
Can the settlement be revisited? Will leave to appeal out of time be given? Can the clients now sue the solicitors in negligence for failing to get the 10% Simmons v Castle uplift?
Overall these cases reinforce the absolute importance of obtaining expert advice in relation to the incredibly complex effect of the Jackson Reforms. None of these decisions comes as any surprise to those of us who specialist in this area.
the court held that the decision to switch from legal aid to a Conditional Fee Agreement was not a reasonable decision and was not to the claimant’s advantage and therefore the success fee and the ATE premium were held not to be recoverable from the defendant.
Here there was no suggestion that the switch was to avoid the new LASPO regime as it occurred in 2009 well before any changes to the recoverability of success fees and additional liabilities was mooted. The success fee and ATE premium totalled £237,000.
In fact, the change from public funding to CFA/ATE funding had occurred prior to service of the Letter of Response in which admissions of breach of duty and causation were made.
Master Leonard, in reaching his decision:
- Found the Defendant’s solicitor’s request for clarification of the Letter of Claim was an entirely reasonable request for information that should have been incorporated in the Letter of Claim;
- Refuted the Claimant’s suggestion that the Defendant could have admitted liability before the Letter of Claim was received, as it is not incumbent on any Defendant to formulate a case against itself or make admissions before it knows what a Claimant’s case is. It was not the Defendant’s fault that it took three years for the Claimant’s solicitors to serve a Letter of Claim;
- Found there was no convincing evidence that the Claimant needed an interim payment to the extent that justified the change to a CFA/ATE arrangement; and
- Held that at no stage was the Claimant advised of the potential risk of having to bear any shortfall on the costs of the ATE premium if it was successfully challenged in whole or part. This left the Claimant exposed to a risk that he was not advised about.
The Master held that the switch from public funding to a CFA backed by ATE insurance in November 2009 was not a reasonable decision, nor to the Claimant’s advantage.
As a consequence, he disallowed both the success fee and the ATE premium in full which otherwise would have been payable by the Defendants.
As with the other two recent cases coming to the same conclusion, this was a clinical negligence case.
It may be that the courts are being influenced by a reluctance to impose a further significant charge, that of the success fee and the ATE, upon a state body in circumstances where the state was already funding the claimant’s claims against the state. If that is indeed the rationale behind these decisions then one has a certain sympathy with the court.
the Queen’s Bench Division of the High Court upheld the decision of Costs Judge Master Rowley that a Conditional Fee Agreement entered into because legal aid was about to run out in the claimant’s clinical negligence case was enforceable even though at the time of it being signed the discharge certificate from the Legal Services Commission had not been obtained.
The NHS trust had attempted to argue that the funding agreement was invalid because the lack of discharge meant that legal aid and a private funding arrangement were running concurrently.
The High Court held that solicitor’s decision was “entirely reasonable and proper”. The issue was purely one of procedure whereas as a matter of substance “the funding had come to an end and [the solicitors] were entitled to enter into a private retainer”.
It was common ground that there would have been no potential problem if there had been a provision in the Conditional Fee Agreement, apparently common in legal aid cases, saying that “no work is covered under this agreement until after discharge of the legal aid certificate”; but this CFA contained no such term.
In Yesil v Doncaster & Bassetlaw Hospitals NHS Foundation Trust, Queens Bench Division, Unreported, 24 February 2016
the court was again considering the position of a claimant who had switched from legal aid to a pre-Jackson Conditional Fee Agreement and After-the-Event insurance in early 2013.
Yet again the court held that the decision to switch was not reasonable as it was based on erroneous information and therefore the additional liabilities were unreasonably incurred and were not recoverable from the defendant.
The judge held that the claimant’s choice did not have to be the best one with the benefit of full and competent advice but had to be a reasonable choice in all of the circumstances and those circumstances included the legal advice which was given or not given.
By switching to a pre-Jackson CFA the claimant was abandoning the 10% Simmons v Castle general damages uplift and in this case that was £28,000.00, the general damages being £280,000.00.
The court held that whilst it was not necessary for a solicitor to “slavishly go through each and every option or scenario”, it was inconceivable that a client would not consider the loss of this uplift to be a material fact.
The failure to raise this issue called into question the adequacy of the advice given and where one of the options is financially beneficial to the solicitor the need for transparency of advice is even greater.
“In my judgment it is inconceivable that a client would not consider the option of an additional 10% uplift on general damages a material factor. The omission to raise this factor, even if the claimant immediately rejected it, seriously calls into question the adequacy of the advice given. Irwin Mitchell would appear to have been not so much “leaning” one way, as giving advice tailored to a decision they had already made. Where one of two or more options available to a client is more financially beneficial to the solicitor, the need for transparency becomes ever greater.”
Switching also loses the client the benefit of Qualified One Way Costs Shifting.
Liquidators and Insolvency Practitioners
the Chancery Division of the High Court held that the defendant was not personally liable to pay costs to his solicitor even though the clear wording of the Conditional Fee Agreement provided that he did have to pay those costs. In reality the agreement was that the solicitor would only be paid if there was recovery of damages.
Here the claimant solicitors sued for £938,838.00 costs from the defendant who was the liquidator of a company.
It was common ground that the actions had ended in a success within the definition contained in the Conditional Fee Agreement.
There were two cases. One case settled for £125,000.00 and recovery was made; the other settled for £1.9 million pounds, but that sum remained unpaid.
The key issue is whether, in spite of the clear wording of the CFA, there was a contractual agreement that the solicitor would in fact only charge a percentage of what was actually recovered.
On the facts the court found that there was and that the CFA had to be looked at in the context of contemporary documents. Correspondence between the parties showed that the solicitor had agreed the defendant had no personal liability for the solicitor’s fees.
The defendant successfully relied on the fact that it was the general practice in insolvency matters where the estate had few assets for the solicitors only to charge insofar as there was recovery. The parties themselves had worked together on many cases over many years on just that basis.
If that was to be different in any given case then it was incumbent upon the solicitor to spell that out clearly and that had not been done here.
The court commented that the defendant client was a sophisticated party who was the dominant personality in the relationship, but nevertheless it always remained the solicitor’s duty to spell out clearly the costs arrangements and the consequences to the client of any particular arrangement.
The decision is right on the facts. However I do not understand why the standard CFA in such matters does not define success as recovery and not just obtaining judgment. There is no problem in relation to the indemnity principle with such a wording.
Recoverability of the success fee and After-the-Event insurance premium in insolvency matters does not apply in relation to a Conditional Fee Agreement or After-the-Event insurance policy entered into after 31 March 2016.
Retrospective CFAs and Retrospective Success Fees
the Queen’s Bench Division of the High Court was considering an appeal against a decision of the Senior Courts Costs Office.
That court had decided that the claimant was:-
- entitled to retrospective recovery of base costs under Conditional Fee Agreements for solicitors and counsel for work done before the CFAs were entered into;
- entitled to recover base costs for the whole period;
- entitled to recover a success fee of 67% for work done from the date of the CFAs, but not before.
The claimant appealed against that decision to refuse to allow recoverability of the success fee in relation to work done before the CFAs were entered into.
The High Court held that a retrospective success fee was not of itself contrary to public policy and thus followed:-
and disagreed with the statement in
where the Senior Courts Costs Office held that it was quite wrong and contrary to public policy to permit the claimant’s solicitors to recover a success fee prior to the signing of the Conditional Fee Agreement.
Consequently the appeal was allowed and the matter returned to the Senior Courts Costs Office for a detailed assessment.
The High Court raised the issue of whether a success fee can be reasonably applied to work undertaken before the Conditional Fee Agreement was signed, given that the success fee is based on the risks as they reasonably appeared to the solicitor at the time the CFA was entered into.
the High Court said:-
“150. In respectful disagreement with Master Campbell and Master Hurst, I do not regard it as necessary to hold that a retrospective success fee is per se contrary to public policy. There is, in my view, insufficient warrant for effectively precluding solicitor and client from making such an agreement. In some, perhaps many, circumstances a retrospective success fee, or its amount, may be unreasonable, either as between the parties or as between solicitor and client. But this will not always be so. The Court has, in my opinion, enough weapons in its armoury, in the form of the criteria applicable on a detailed assessment and the provisions of the Costs Practice Direction and the Practice Direction on Protocols, to disallow or reduce retrospective fees that are unreasonable, as in this case.”
The Senior Courts Costs Office had recognised that it had a discretion to allow a recoverable retrospective success fee but chose not the exercise it here.
In spite of reading the High Court Judgment several times I cannot identify the error of law that the Senior Courts Costs Office is supposed to have made.
It is hoped that details of the Detailed Assessment, directed to take place on paper, will throw light on this issue.