Kerry Underwood

CONTINGENCY FEE AGREEMENTS: HIGH COURT GUIDANCE

with 3 comments


In Bolt Burdon Solicitors v Tariq & Others [2016] EWHC 811 (QB), 13 April 2016

the Queen’s Bench Division of the High Court upheld a Section 57 Solicitors Act 1974 Contingency Fee Agreement whereby the solicitors billed £498,083.52, whereas on a time basis the total would have been around £50,000.00.

The High Court rejected all of the defendants’ challenges which included that the solicitors had misrepresented the chances of success and that the agreement was unfair and unreasonable meaning that the court should exercise its discretion under Section 57(5) of the Solicitors Act 1974 to set aside the agreement or to reduce the fees payable.

This was not a personal injury case and the agreement was a Contingency Fee Agreement and not a Damages-Based Agreement under the Damages-Based Agreements Regulations 2013. However it should be noted that the maximum under a Damages-Based Agreement in such types of case is 50% and therefore it is unsurprising that the judge rejected the client’s challenge to this percentage.

Interestingly the judge suggested that Contingency Fee Agreements are more advantageous to clients than Conditional Fee Agreements:-

“It is particularly important, in my judgment, to distinguish the potential consequences of this Contingency Fee Agreement from those of a conditional fee agreement… The client may well find himself worse off overall with a conditional fee agreement unless sufficient recovery of compensation is achieved.”

This is an important and key judgment for several reasons.

Firstly it is rare that Section 57 Contingency Fee Agreements come before the court and indeed many lawyers seem unaware of the existence of such a creature:

Thus this very lengthy judgment – 37 pages – is a useful guide to the law in this area.

Secondly the court recognises that any Contingency Fee Agreement may result in the lawyers getting far more in costs than under an Hourly Rate Regime, but obviously the opposite is also true.

Thirdly the court was comfortable with a 50% contingency fee.

Given that Parliament has specifically sanctioned 35% for employment matters and a maximum of 50% in Damages-Based Agreements, other than in personal injury and employment matters, it seems very unlikely that the court will have a problem with my proposed figure of 40% in contingency fee agreements for personal injury work.

The court also rejected any suggestion that the solicitors should have told the clients to take independent legal advice:-

“It could be said of any contingency fee agreement, where the solicitors’ remuneration is proportionate to the amount of recovery, that there is a conflict between the solicitors wanting to obtain as their fee the largest possible percentage of the compensation recovered and the client’s interest in achieving exactly the reverse.

There was no obligation on Bolt Burdon to suggest that Mr Tariq should obtain independent legal advice in relation to the terms of the Agreement. He did not need to be told this. There was no reason why he could not have sought advice from the solicitor who had acted for him for 30 years in his business affairs. He was put under no pressure of time to sign the Agreement. Quite the reverse, he took two months to sign it and did so only when he was satisfied that his precise requirements in relation to disbursements had been met.”

The court also said that on the face of it there was “an obvious disquiet in permitting solicitors to recover fees of some £400,000 for work which might otherwise have been billed, on the basis of hourly rates, at only some £50,000… However, on proper analysis this ignores the commercial realties which faced the parties when the Agreement was made. In truth the Agreement represented a speculative joint business venture in which the solicitors were taking all the risk and the client was exposed to no risk at all.”

Section 57 provides as follows:-

57 Non–contentious business agreements.

  • (1) Whether or not any order is in force under section 56, a solicitor and his client may, before or after or in the course of the transaction of any non–contentious business by the solicitor, make an agreement as to his remuneration in respect of that business.

 

  • (2) The agreement may provide for the remuneration of the solicitor by a gross sum or by reference to an hourly rate, or by a commission or percentage, or by a salary, or otherwise, and it may be made on the terms that the amount of the remuneration stipulated for shall or shall not include all or any disbursements made by the solicitor in respect of searches, plans, travelling, taxes, fees or other matters.

 

  • (3) The agreement shall be in writing and signed by the person to be bound by it or his agent in that behalf.

 

  • (4) Subject to subsections (5) and (7), the agreement may be sued and recovered on or set aside in the like manner and on the like grounds as an agreement not relating to the remuneration of a solicitor.

 

  • (5) If on any assessment of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the [F5costs officer] may enquire into the facts and certify them to the court, and if from that certificate it appears just to the court that the agreement should be set aside, or the amount payable under it reduced, the court may so order and may give such consequential directions as it thinks fit.

 

  • (6) Subsection (7) applies where the agreement provides for the remuneration of the solicitor to be by reference to an hourly rate.

 

  • (7) If, on the assessment of any costs, the agreement is relied on by the solicitor and the client objects to the amount of the costs (but is not alleging that the agreement is unfair or unreasonable), the costs officer may enquire into—

 

  • (a) the number of hours worked by the solicitor; and

 

  • (b) whether the number of hours worked by him was excessive.”

 

The predecessor of this provision was Section 8 and 9 of the Attorneys and Solicitors Act 1870.

The court, at paragraph 144 stated:-

“144. It follows that:

(i)          a contingency fee agreement of the kind in this case, where the fee is based on a “percentage”, is perfectly lawful;

(ii)           on an assessment of costs the client is entitled to object to the agreement as unfair or unreasonable;

(iii)          in that event the costs officer may enquire into the facts and certify them to the court;

(iv)         the court may set aside the agreement or order that the amount payable under the agreement is reduced, if it appears “just” to do so.”

In relation to questions of fairness and reasonableness under Section 57(5) the High Court pointed out that there is very little authority on this subject and it considered a case determined under one of the 1974 Act’s predecessors – Sections 8 & 9 of the Attorneys and Solicitors Act 1870.

In Re Stuart, Ex Parte Cathcart [1893] 2 QB 201

the court said this:-

By s.9 the Court may enforce an agreement if it appears that it is in all respects fair and reasonable. With regard to the fairness of such an agreement, it appears to me that this refers to the mode of obtaining the agreement, and that if a solicitor makes an agreement with a client who fully understands and appreciates that agreement that satisfies the requirement as to fairness. But the agreement must also be reasonable, and in determining whether it is so the matters covered by the expression “fair” cannot be re-introduced. As to this part of the requirements of the statute, I am of opinion that the meaning is that when an agreement is challenged the solicitor must not only satisfy the Court that the agreement was absolutely fair with regard to the way in which it was obtained, but must also satisfy the Court that the terms of that agreement are reasonable. If in the opinion of the Court they are not reasonable having regard to the kind of work the solicitor has to do under the agreement, the Court are bound to say that the solicitor, and an officer of the Court, has no right to an unreasonable payment for the work he has done and ought not to have made an agreement for remuneration in such a manner. On this question it is quite clear to me that we cannot arrive at any other conclusion than that arrived at by the Divisional Court. It is impossible to say that work which according to information given by the taxing master to the Divisional Court would be properly remunerated by a sum of £20 can be reasonably charged at £100. The decision of the Court below must be affirmed, and the appeal dismissed.”

Here the High Court held that the outcome provided no particular assistance but that the case is helpful in identifying the issues of fairness and reasonableness and holding that those must be considered separately.

Fairness relates principally to the matter in which the agreement came to be made.

Reasonableness relates principally to the terms of the agreement.

The court also had this to say, at paragraph 150 of its judgment:-

“150. One other statutory provision, very recent, was also referred to in the course of argument and should be mentioned for completeness. The Damages-Based Agreements Regulations 2013 permit what are, in effect, contingency fee agreements in relation to certain contentious proceedings. Regulation 4(3) limits payment under such an agreement to an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client. I stress that these Regulations have no direct application in the present case because here we are concerned with a non-contentious business agreement. Mr Mallalieu drew attention to the provisions in order to demonstrate that the level of 50% provided for in the Agreement in the present case is within the limit of what Parliament has permitted in Damages-Based Agreements. It was also asserted in the pleadings (at paragraph 27(e) of the amended reply) that in enacting these provisions Parliament expressly rejected any recommendation that specific advice of a prescribed nature had to be provided before such an agreement could be enforced.

The parties submissions on “unfair or unreasonable”

Paragraph 156 contains an interesting, accurate and telling illustration of how contingency fees protect clients more than Conditional Fee Agreements where costs can exceed damages:

“156. Mr Mallalieu submitted strongly that the questions of fairness and reasonableness were not to be tested by the outcome, but by reference to the reasonable perception at the time the agreement was entered into. He submits that any analogy or comparison with a conditional fee agreement is wholly inappropriate. By way of illustration, assume a conditional fee agreement with an uplift of 100%. Solicitors incur costs of £200,000, which with the mark up of 100%, entitles them to £400,000. If the sum recovered in the proceedings is £1million, this may be a satisfactory outcome for the client. But if instead, after the same amount of work, the recovery in the proceedings is only £50,000, there would still be the same liability to pay costs of £400,000. This is because in a conditional fee agreement costs are always tied to the work done, whereas in a contingency fee agreement costs are always proportionate to recovery. Mr Mallalieu submits that to grant the relief sought in this case would be to destroy the commerciality of contingency fee agreements of this kind.”

Of course the Underwoods method, recognised by the Court of Appeal at paragraph 32 of Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94 (23 February 2016) effectively gives the client the protection of contingency fees even in a Conditional Fee Agreement context.

It should be noted that the decision of the Court of Appeal in Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94 (23 February 2016) and the decision of the High Court here represent a wholesale rejection of the obiter views of DJ Lumb in A & M (by their litigation friend) v Royal Mail Group (2) [2015] MISC B30 (CC).

The only paragraph in the judgment that lawyers should be wary of is paragraph 166 where the judge compares the charges here with a Conditional Fee Agreement with an uplift of 300%, which would be consistent with the risk assessment of this claim.

The judge appears to be unaware that the maximum success fee in a Conditional Fee Agreement of any kind is 100%.

Subject to that caveat this is a most helpful and useful judgment.

 

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Written by kerryunderwood

April 19, 2016 at 7:58 am

Posted in Uncategorized

3 Responses

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  1. Morning mr underwood have read through this very interesting piece that you have posted
    It would appear there are many rules for explaining both pros and cons to a client . given they are not legal minded .and yet the question of misrepresentation that was highlighted in this case hmmmmmm

    John fairhurst

    April 19, 2016 at 9:43 am

    • But generally surely much better than a client paying a full hourly rate, win or lose?

      kerryunderwood

      April 19, 2016 at 10:35 am

  2. To that point I am on the fence I feel if the points are made to the client then the decision can be made and proceed on it hence no misrepresentation .but if the client is not legal minded and not informed .hence the case you have made point to he feels poor advise I understand the courts ruling on this but the client is not the lawyer or courts they are at best lay person
    I have seen both side to this . And I just feel it best practice to inform rather than none inform !

    John fairhurst

    April 19, 2016 at 10:59 am


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