Kerry Underwood

CONDITIONAL FEE AGREEMENTS: LOSS OF CHANCE OF RECOVERY

with 6 comments


In FPH Law (a Firm) v Brown (t/a Integrum Law) [2016] EWHC 1681 (QB), 14 July 2016

 

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:-

 

CFA’s: Never Name the Defendant! (2)

 

CFA’s: Never Name the Defendant! (1)

 

Conditional Fee Agreements, Damages-Based Agreements and Contingency Fees

 

CFA’s: A Wrong Decision: Radford Considered

 

 

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Written by kerryunderwood

August 3, 2016 at 7:23 am

Posted in Uncategorized

6 Responses

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  1. Mr underwood
    A very interesting case especial when read against the SRA code of conduct I find many questions come to mind
    A) why would a acting law firm enter into any contract knowing it was founder mentally floured from the outset
    B)if a law firm knew about existing legal expenses insurance then why would they not disclose that fact to the client
    C) is it not the case that the law firm in this case be acting on there Owen financial interest and not that of the client

    John fairhurst

    August 3, 2016 at 10:33 am

    • John

      The Conditional Fee Agreements Regulations 2000 were notoriously onerous and difficult to follow and a law firm would not necessarily know that the contract was fundamentally flawed from the outset. Indeed it would not be apparent from the contract itself as to whether it was unlawful as the 2000 Regulations required the solicitor to give all sorts of additional information to the client, even before any contract was entered into.

      The regulations were widely regarded as unsatisfactory and unfair to solicitors and were repealed by Parliament within five years.

      It is not a question of the law firm knowing that the client had legal expenses insurance. Legal expenses insurance is taken out by the client, not the law firm, and it is the duty of the client to disclose that information to the law firm and not the other way round.

      As I have made clear in this post, the judgment does not give sufficient information about the background and what it is that the solicitors are alleged to have done, or failed to do, which caused them to fall foul of the regulations.

      The party benefiting here is the losing defendant who has received a windfall in not having to pay costs for work properly and successful done by the law firms involved where there has been a technical failure to comply with the regulations in a way which would not have invalidated an ordinary hourly rate agreement.

      This is the unfairness: a client who has a Conditional Fee Agreement with a solicitor enjoys enormous protection in that they do not have to pay their own solicitor’s costs if they lose, whereas a client paying an hourly rate, win or lose, does not enjoy such protection and is in a far worse position.

      However under the 2000 Regulations far greater formalities had to be complied with by the solicitor in relation to an agreement which in fact gave much greater protection to the client.

      Happily, that has now all changed, both as a result of Parliament taking action and the courts’ interpretation of matters in relation to Conditional Fee Agreements and Contingency Fee Agreements.

      Kerry

      kerryunderwood

      August 4, 2016 at 11:16 am

      • Hello Kerry
        Great information as always expected only one thing dhoo what if the client made the law firm aware that they knew of a legal protection cover but the law firm said it couldn’t be used and that there searches had found nothing off note
        Wouldn’t that raise the same point highlighted by yourself under the SRA rules
        Thank you john

        John

        November 2, 2016 at 7:49 pm

      • John

        Solicitor has duty to advise clients of all funding methods, and if the client specifically states that they have legal expenses insurance, then that must be fully investigated and the client advised accordingly. At the end of the day, provided that the clients is fully and accurately advised, it is the clint’s choice.

        Client now has an unfettered choice of solicitors in relation to legal expenses insurance- see my blogs.

        Kerry

        kerryunderwood

        November 3, 2016 at 3:04 pm

  2. Yet another illustration of the utter insanity of CFA’s.

    I’m old enough to recall the time before CFA’s existed. In those days legal aid was available for PI claims, and was quite readily granted. However, there was a filter applied, so that in general terms only meritorious claims went ahead.

    Because the vast majority of such claims were settled on terms that the claimant’s costs were paid there were very few claims on the Legal Aid Fund, so the net cost to the government was minimal.

    The claimant’s solicitors received reasonable costs, and the system worked pretty well.

    But after legal aid was abolished and CFA’s were introduced the entire PI landscape changed radically for the worse. Because CFA’s were so profitable – a licence to print money – they attracted all sorts of parasites and fraudsters, not just the claimants and their solicitors, but credit hire operators, credit repairers, medical report agencies, claims management companies etc, etc.

    CFA’s allowed insurers to be blackmailed into settling completely unmeritorious claims simply because they daren’t face the threat of 100% success fees and a hefty ATE premium. Of course, this gross imbalance of arms applied to all litigation, not just PI claims.

    There was so much money on offer, and the insurers were such easy targets, that we started to see bottom-feeding firms of solicitors offering cash incentives of hundreds of pounds for accepted claims, and if they were invented who cared, the chances of being found out were virtually zero.

    CFA’s have been responsible for the corruption of a whole swathe of the justice system. They turned what used to be a respectable, if unglamorous section of the profession into a casino, dominated by shysters; they turned poor and vulnerable people into fraudsters; they corrupted doctors into producing medical reports that they knew to be fraudulent, and they lined the pockets of criminals.

    The damage caused to the English justice system, both in financial and ethical terms, by the replacement of legal aid with CFA’s has been horrendous. Those who devised and implemented the policy should hang their heads in shame.

    Michael

    August 3, 2016 at 11:17 am

    • I disagree on almost every point, but hey – that is what blogposts, comments and replies are about!

      Kerry

      kerryunderwood

      August 3, 2016 at 3:38 pm


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