Solicitor’s costs – Conditional fee agreement (CFA) – Consideration – Enforcibility – Whether agreement providing for retrospective success fee valid – Whether retrospective fee invalidating CFA – Appeal dismissed
In 1996, the respondent became the tenant of a property owned by the appellants. In 1998, a survey revealed that the premises constituted a health hazard amounting to a statutory nuisance.
The respondent brought proceedings against the appellants for failure to repair her property. She signed a conditional fee agreement (CFA) with her solicitor, but before the proceedings were settled, the appellants challenged the validity of a similar CFA in a different case. This prompted the respondent’s solicitor to ask her to sign a second CFA. In a letter to the respondent, it explained that to forestall any dispute concerning the appellants’ liability to pay her legal costs, it intended to take advantage of a change in the law relating to “no win no fee” agreements. It invited the respondent to sign a new CFA, which she did. The letter indicated that the legal costs to date would be dealt with under the second CFA unless the court ruled that that was invalid, in which case they would revert to the original CFA. The second CFA also provided for a success fee, which had not been stipulated in the first CFA.
The case was settled. In subsequent costs proceedings, the master decided that: (i) the letter formed part of the second CFA; (ii) the solicitor’s undertaking to continue to act for the respondent was adequate consideration; (iii) no presumption of undue influence arose; (iv) a retrospective success fee was not permitted; but (v) that did not invalidate the second CFA, which was enforceable.
The appellants appealed. They contended, inter alia, that a retrospective CFA, with or without a success fee, was unenforceable, particularly when the CFA had been made after the introduction of the Conditional Fee Agreements (Revocation) Regulations 2005 but related to a period governed by regulation 4 of the Conditional Fee Agreements Regulations 2000.
Held: The appeal was dismissed.
Although the letter formed part of the second CFA, it had been written in the context of a challenge to the first CFA and did not purport to terminate that agreement.
The agreement to continue to act for the respondent was adequate consideration under the second CFA. The consideration consisted of continuing to act in circumstances where, should the appellants be correct in their challenge, the solicitors had no obligation, and the right not, to do so: Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 applied, Arrale v Costain Civil Engineer [1976] 1 Lloyd’s Rep 98 distinguished.
In the circumstances, ordinary motives rather than undue influence explained the respondent’s agreement to sign the second CFA, namely her wish that the solicitor should continue to act for her on terms that would ensure, so far as possible, that the firm would be paid: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; [2002] 2 AC 773 and Allcard v Skinner (1887) LR 36 Ch D 145 applied.
Generally speaking, parties were entitled to make an agreement that applied to the period before it was made. Section 59 of the Solicitors Act 1974, which permitted a solicitor to make an agreement for remuneration in respect of contentious business “done, or to be done, by him”, contemplated a retrospective agreement. The second CFA was not a contentious business agreement and section 58 of the 1974 Act required that: (i) a CFA should be in writing; (ii) it should not apply to certain proceedings; and (iii) a success fee should not exceed 100%. There was no prohibition against retrospectivity and none should be implied.
Futhermore, it was not necessary to hold that a retrospective success fee was per se contrary to public policy. There was insufficient warrant for effectively precluding the solicitor and client from making such an agreement. The court could apply 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 unreasonable retrospective fees. However, even if a retrospective success fee was contrary to public policy, it did not follow that the second CFA had been vitiated. The court could strike out the success fee provision, leaving the obligation to pay the basic charges unaffected. The irrecoverability of such a fee as a matter of law would not render contractual performance impossible nor was its recoverability a vital attribute of the consideration to be provided to enable the contract to be performed.
The second CFA had not been invalidated by the fact that it was made after 1 November 2005 when the 2005 Regulations came into effect. The protections previously provided by regulation 4 had not disappeared. The 2000 Regulations had been revoked on the basis that the client’s protection would be afforded by the provisions of the Solicitors’ Costs Information and Client Care Code 1999, which incorporated substantial parts of the previous regulations, and which had been superseded by the Solicitors’ Code of Conduct 2007.
Kerry Bretherton (instructed by the legal department of Birmingham City Council) appeared for the appellants; Roger Mallalieu (instructed by McGrath & Co, of Birmingham) appeared for the respondent.
Eileen O’Grady, barrister
