CFA’s: A WRONG DECISION: RADFORD CONSIDERED
the solicitors were acting for a number of defendants including individuals and corporate clients and the individual defendants were successful in arguing that proceedings had not been properly served but the case continued in relation to the corporate clients and the solicitors, and counsel, continued to act for them.
Ultimately the claim was dismissed on the corporate defendants’ successful application for summary judgment.
The claimants were ordered to pay the defendants’ costs and a dispute arose as to whether the terms of the Conditional Fee Agreement entered into between the corporate defendants and the solicitor and counsel covered the work done.
Clearly all of the defendants had won and there was no dispute that the terms of the Conditional Fee Agreement covered the work done for the individual defendants who had successfully argued that they had not been properly served.
The dispute was as to whether work subsequently done for the corporate defendants after the hearing in relation to service was, or was not, covered by the Conditional Fee Agreement.
The court held that the CFA did not cover such work and therefore neither the solicitors nor counsel were entitled to be paid for work done after that date and there was no residual or ongoing retainer outside of the Conditional Fee Agreement.
Rectification would not affect liability to pay because, in accordance with previous decisions in relation to Conditional Fee Agreements, rectification would not be allowed after the order to pay costs was made.
This was a commercial case where the solicitors were acting for defendants but they had adapted the Law Society Model Conditional Fee Agreement for claimant personal injury work including under the heading:-
“What is not covered by this agreement?”
the bullet point: –
- Any claim against you by your opponent or counterclaim by you to the claim as opposed to a claim for damages under the cross undertaking.
As the court here said: –
“The exclusion of “any claim against you by your opponent …” is “highly unusual wording where the clients were defendants to a claim”. That wording indicated that “No claim by the Claimants was contemplated by the CFA … All that was covered was the Defendants’ claim to have the proceedings against them dismissed.””
“11(7). The words “to have the proceedings against you dismissed” were not to be construed broadly, so as to encompass the proceedings to strike out or for summary judgment that were “not issued until many months after disposal of the procedural issues” and “could not be foreseen”. Such a construction would “fly in the face of the entire purpose for which CFAs were put in place”, namely to reward the solicitor for risks he undertakes. It would allow the solicitor to be “compensated by up to 100% of his base costs for risks that were not even in his contemplation at the time that the agreement was entered into.” The risk assessment, which supports this view, cannot be divorced from the question of the scope of the CFA; it forms part of the agreement.”
At paragraph 12 the court here then set out the reasoning of the Costs Judge, whose decision the court here upheld, at paragraph 40 of the Costs Judge’s decision:-
“I am satisfied that on a true construction of the scope of this CFA … its scope was meant to cover only procedural issues such as service and jurisdiction and if the Defendants won on either of those issues, the Defendants’ damages under the cross undertaking. The scope of the agreement has to be construed narrowly in that way. The consequence of my finding is that the Defendants had obtained a win as defined by the agreement by 23 May 2012. By that date the scope of the agreement had come to an end and accordingly the Defendants are unable to recover costs from the Claimants under the terms of the CFA from that date.”
Leading counsel for the defendants here unsuccessfully submitted that the Costs Judge’s use of the risk assessment to determine the contract between the defendants and their lawyers was misconceived.
He argued that the retainer was indeed limited in scope but it covered all interim applications to dismiss the claim without a trial but did not otherwise apply to the defence of the substantive proceedings and that that was the effect of the “what is not covered” section to the effect that the CFA did not apply to “any claim against you by your opponent…”
The court held that it was a fundamental principle of contractual interpretation that regard must be had to the entire contract and the risk assessment formed “part of the contractual documentation”.
In Jones v Wrexham Borough Council  1 WLR 1599 the Court of Appeal had applied that principle to the construction of a Conditional Fee Agreement saying: –
“I can see no reason why the court should not look at the whole package produced by the solicitor, the CFA agreement, the rule 15 letter explaining to the client the effect of the agreement, and indeed the insurance policy recommended by the solicitor…”
On this point the court concluded:-
“29. For the reasons given above I reject the contention that the Costs Judge was wrong in his construction of the CFA. In my judgment he applied the right principles, and arrived at the correct interpretation. In the end, one comes back to the meaning of the words used, in their context. The work for which the parties contracted under the CFA was limited to the pursuit of procedural points which had already been identified, on the basis of which the defendants were to seek to get rid of the claim and obtain damages under the cross-undertaking and possibly an anti-suit injunction. That work came to an end on the making of the consent order of 23 May 2012. It is common ground that the CFA did not extend to work on the defence of the claim, or the counterclaim. It did not, on its true construction, extend to work on the much later application to strike out or for summary judgment.”
This is far from the first time that commercial lawyers have fallen foul of the law relating to Conditional Fee Agreements and have lost out heavily in costs for want of spending a few hundred pounds or so on getting a specialist to check or draft the Conditional Fee Agreement. A ha’porth of tar indeed.
Here the court also rejected the idea that the original retainer continued to exist, or was revived by the end of the work covered by the Conditional Fee Agreement:-
“In my judgment, entry by the Defendants into the CFA brings the earlier retainer to an end. There is no evidence before the court to the effect that the Defendants were ever advised that were the CFA to be rendered unenforceable or to subsist in relation to only part of the proceedings, that the earlier retainer with their lawyers would continue as before. The reasonable expectations of the Defendants based on the evidence that I have considered leads me to the conclusion that the Defendants would not expect to have to pay their lawyers for work done in those circumstances.”
That is a quote from the Costs Judge.
It is a curious finding as it effectively states that corporate defendants assumed that their lawyers were continuing to work free of charge, win or lose.
How can a CFA revoke a prior retainer in respect of work to which the CFA did not apply?
Would a CFA revoke, for example, instructions to draft a Will for the same client, or sell a house? How can any agreement revoke something to which it does not apply?
Here the court held that what had happened was that the defendants and the solicitors had intended that the work not covered by the original Conditional Fee Agreement would indeed by dealt with by a fresh Conditional Fee Agreement but that fresh agreement was never put in writing and therefore fell foul of Section 58(3)(a) of the Courts and Legal Services Act 1990.
Of course the reason that no fresh CFA was entered into was that the defendants and their solicitors assumed that the first one did indeed cover the work done in relation to the successful application to strike out the claims and obviously no one reduces to writing an agreement that they have not in fact made as they thought the existing agreement covered the work done.
Here it was the other party, relying on the indemnity principle, who picked apart the agreement and successfully persuaded both the costs judge and here the High Court judge to find that the lawyers were entitled to nothing for the work done after the service issues had been dealt with.
Talk about windfall! A ridiculous decision which is grossly unfair and should be overturned by the Court of Appeal and one seemingly at odds with the decision of the High Court in:-
This is not a case where there was no written Conditional Fee Agreement. On the contrary there was a full written agreement with a very detailed risk assessment, and indeed it is that risk assessment which is the undoing of the defendant lawyers in this case.
It would have been perfectly open to the court, and very clearly what the court should have done, to find that there was a Conditional Fee Agreement in writing and that it was an implied term of that agreement that the work carried out in relation to the summary applications was covered.
It is not the law that every conceivable possibility in a Conditional Fee Agreement has to be put in writing. If it was then the agreements would be hundreds of pages long and would need to include clauses such as:-
- You will see that you have a duty to cooperate with us and if you do not do so then we can terminate the agreement. Because we have to put absolutely everything in writing there follows 2,873 situations which we do not regard as a failure to cooperate on your behalf entitling us to terminate the retainer;
- An earthquake prevents you from attending an appointment;
- You suffer a heart attack on the way to the office;
- [insert all other circumstances that you can think of]
All contracts reduced to writing in fact contain a welter of unwritten, implied terms. Indeed much of the law of employment contracts is based on an implied term of trust and confidence which is just that – implied. This is in spite of the fact that, as with Conditional Fee Agreements, contracts of employment must be in writing – see section 1 of the Employment Rights Act 1996.
There seems to be a circular argument:-
“You did not intend the CFA to cover post service argument work. You did not enter into a fresh written agreement because you thought the first one had covered the work.”
When will all of the judiciary realize that Conditional Fee Agreements promote access to justice, are a legal and proper form of funding as far as Parliament is concerned and are far more ethical and satisfactory and fair than the dodgy old hourly rate scam.
This decision is wrong.
The proverb “do not spoil the ship for a ha’p’orth of tar” has nothing at all to do with ships. Ship is an old dialectal pronunciation of sheep and thus the original literal sense was “do not allow sheep to die for the lack of a trifling amount of tar”, tar being used to protect sores and wounds on sheep from infection by flies.
Not a lot of people know that.