CONDITIONAL FEE AGREEMENTS: LOSS OF CHANCE OF RECOVERY
the Queen’s Bench Division of the High Court held that the solicitors FPH could seek to recover from Mr Brown, a former partner, damages for loss of a chance to recover money from a potential paying party in respect of costs potentially due under a Conditional Fee Agreement originally entered into by the firm.
Mr Brown, when a partner with FPH Law, had entered into a Conditional Fee Agreement with Mr Douglas, a client, and that file was then transferred to Mr Brown when he set up on his own.
That case eventually settled on the basis of payment of agreed damages from the defendant in that action, Jarvis plc, to Mr Douglas with costs to be assessed if not agreed.
Eventually, on assessment, the District Judge held that Regulation 4 of the Conditional Fee Agreements Regulations 2000 had not been complied with and that meant that the claimant in those original proceedings, Mr Douglas, effectively the solicitors, could recover no costs.
On transfer of the files from FPH Law to Mr Brown, Mr Brown undertook, among other things, to provide his former firm “with reasonable information about any significant developments in respect of the file including but not limited to offers to settle…”
The total bill submitted for both the old and new firms’ costs was £84,050.72.
The defendant Jarvis plc challenged the validity of the Conditional Fee Agreement on the basis, among other things, that Mr Brown had increased the hourly rates payable during the life of the agreement when there was no provision so to do.
However, after negotiations, Jarvis plc offered £70,000.00, which offer was not accepted and ultimately nothing was recovered. Indeed the successful claimant in the litigation, Mr Douglas, was ordered to pay £5,000.00 costs in relation to the unsuccessful application for costs under the Conditional Fee Agreement.
Mr Brown had notified his former firm of the offers and counteroffers but had never told them that the validity of the Conditional Fee Agreement was being challenged.
In this litigation that firm, FPH, contended that if Mr Brown had complied with his undertaking then the costs claim could have been settled without the court determining the validity, or in fact invalidity, of the Conditional Fee Agreement.
Mr Brown contended that a compromise would not have been possible as the Conditional Fee Agreement was unenforceable from the date that it was entered into, not when the District Judge declared it unlawful.
The High Court accepted FPH’s position. The cause of action accrued when the breach of undertaking took place, that is before the District Judge’s ruling.
Assuming that Mr Brown was negotiating in good faith with the solicitors for Jarvis plc, a compromise could have been reached whether or not the Conditional Fee Agreement turned out to be illegal or unenforceable.
Even without a challenge to the validity of the Conditional Fee Agreement it beggars belief that this matter was not settled by the claimant’s solicitors.
Mr Brown, without mentioning the challenge to the validity, had suggested to his former firm a counteroffer of £77,000.00 with a view to settling at £73,000.00 and the solicitors for Jarvis plc offered £70,000.00, even though they were challenging the validity of the Conditional Fee Agreement.
Thus the claimant’s solicitors were prepared to accept £73,000.00 and the defendant’s solicitors offered £70,000.00, even though they were challenging the Conditional Fee Agreements validity.
Another interesting point in the judgment is the fact that the judge specifically drew attention to, and mentioned in the judgment, (paragraph 4(20)) that the time shown by Mr Brown for preparing the whole Conditional Fee Agreement was just six minutes, the inference being that no proper consideration was given to the contents of the Conditional Fee Agreement and in particular to the requirements in the Conditional Fee Agreements Regulations 2000.
This decision must be correct – even without the challenge to the validity of the Conditional Fee Agreement it is remarkable that the costs issue could not be settled when the parties were just £3,000.00 apart at £73,000.00 and £70,000.00.
One would not advise a client to continue to litigate for damages over such small a difference. It must be the case that if FPH Law had known that the whole of their costs was at risk, they would have wished to settle the matter.
I must admit to having difficulties in following much of the rest of this judgment.
At paragraph 4(19) the judge refers to a dispute about the fact that Mr Brown increased the hourly rate and there was apparently no provision so to do.
However the whole judgment is predicated on the ground that the Conditional Fee Agreement was invalid from the beginning, and yet if the increase in the hourly rates was the problem, then the agreement would only have been invalidated from the time the rates were put up, not from the beginning.
It may be that this whole point is a red herring – it is not subsequently dealt with.
In fact the Conditional Fee Agreement appears to have been ruled invalid due to a failure by the legal representative to consider whether the client’s risk of incurring liability for costs in respect of the primary proceedings were insured against under an existing contract of insurance. That breach is Regulation 4(2) (c); and that the legal representative had not advised about such a contract of insurance contrary to Regulation 4(2) (e)(ii).
In this judgment the judge does not set out those provisions and has not set out which part of the Conditional Fee Agreement, or the background to it, caused those provisions to be breached.
In the dispute between the original solicitors and Mr Brown the issue was whether a compromise could be validly reached between the original parties in circumstances where the Conditional Fee Agreement was in fact invalid from the beginning.
The judge then felt it necessary to examine in detail public policy treatment of Conditional Fee Agreements and Contingency Fee Agreements, notwithstanding the fact that both are sanctioned by Acts of Parliament and that in the United Kingdom Parliament is always the arbiter of public policy.
The court held that even on a Conditional Fee Agreement subsequently found to have been invalid a compromise was lawful.
That must be right – virtually all litigation which is compromised involves one party, even when making payment, arguing that it is not in fact liable to make that payment, for whatever reason. Virtually nothing could ever be compromised if it was a condition of that compromise that the original agreement was lawful and binding etc.
If parties accepted that position, then there would rarely be any litigation.
Fortunately the repeal of the highly onerous 2000 Regulations has largely confined these arguments to history and the facts of this case are clearly unusual.
Nevertheless considerable care still needs to be taken in preparing a Conditional Fee Agreement and as many recent cases have shown solicitors are still being deprived of costs due to a failure to draft Conditional Fee Agreements properly, or to take proper advice on unusual cases.
Examples include naming the wrong defendant and restricting the Conditional Fee Agreement to preliminary issues etc. – see for example my posts:-