SOLICITORS RETAINER WAS UNLAWFUL & NO COSTS PAYABLE: COURT OF APPEAL DECISION CONSIDERED
In the judgment given today Rees -v- Gateley Wareing  EWCA Civ 1351 the Court of Appeal held that a retainer between the solicitor and client was unlawful, overturning the first instance decision on the matter. Consequently the solicitors could not recover fees.
The crucial facts are that the claimants entered into a retainer agreement with the defendant solicitor which included a provision for the solicitors to be paid a percentage of the moneys recovered by the claimants in a property/commercial dispute.
THE RETAINER LETTER
“As you know, I am trying to resolve matters on a commercial basis, without the need for formal proceedings being taken. In terms of the work involved, much depends upon the reaction of the other parties and their approach to matters. There has been a significant amount of paperwork to consider contained within 7 lever arch files. It has been agreed that you will pay on client account the sum of £5,000.00 to cover the initial investigative cost. I also understand from your discussions with Craig [Mitchell] that it has been agreed that from there on in the case will be dealt with on a conditional fee basis. This firm’s charges shall be 5% of any monies recovered on your behalf, up until 22 May 2003. As from 23 May 2003, this firm’s charges shall be subject to review and agreement between the parties, but in any event not less than 5% as specified above. We shall, of course, give credit for the £5,000.00 against any eventual recovery.”
It was common ground that this was not a valid conditional fee agreement. The issue was whether the work carried out by the solicitor was “litigation”. If it was not litigation then the agreement would be valid, as this kind of agreement is lawful in non-contentious work. If it was “litigation” then it was not valid. The judge at first instance found that the work carried out was not litigation because the solicitors were not on record and were assisting their clients but not directly involved in the litigation process. This decision was overturned by the Court of Appeal.
- Before turning to the steps in the argument on this part of the case, I must explain what I mean by certain terms. Like Schiemann LJ in Awwad v Geraghty & Co  1 QB 750 I will describe as a “contingent fee” a fee under which a lawyer will recover some of the client’s winnings; and as a “conditional fee” a fee under which a lawyer will recover his normal fee (with or without a percentage uplift) in certain events. The distinction between the two is that the starting point for a contingent fee is the client’s recovery, whereas the starting point for a conditional fee is the lawyer’s normal profit costs. We are concerned with a contingent fee. Schiemann LJ also distinguished between a “conditional normal fee” and a “conditional uplift” fee, the latter being a case in which the fee also included a success fee.
- It is common ground that the agreement in the present case is not one permitted by section 58 of the Courts and Legal Services Act 1990 or the regulations made under that section. Section 58 (1) of the 1990 Act says that, subject to one exception, a conditional fee agreement which does not comply with that section “shall be unenforceable“. Section 58 (2) defines a “conditional fee agreement”. The relevant part of the definition is that it is an agreement “with a person providing … litigation services which provides for his fees … to be payable only in specified circumstances”. Litigation services are themselves defined by section 119 (1):
“litigation services” means any services which it would be reasonable to expect a person who is exercising, or contemplating exercising, a right to conduct litigation in relation to any proceedings or contemplated proceedings, to provide”
- The right to conduct litigation, also defined by section 119 as it stood at the relevant time, means:
(a) to issue proceedings before any court; and
(b) to perform any ancillary functions in relation to proceedings (such as entering appearances to actions)”
- Gateley Wareing say that the retainer agreement was not a conditional fee agreement as defined, with the result that section 58 has no application. If they are wrong about that, they say that the retainer agreement falls within the exception in section 58 (5) which makes an exception for cases governed by section 57 of the Solicitors Act 1974. Thus the only case in which a contingent fee (as opposed to a conditional fee) is permitted is one governed by section 57 of the Solicitors Act 1974. That section expressly permits a solicitor to agree a fee based on a “percentage”. However, section 57 applies only to the “transaction of any non-contentious business by the solicitor.” Non-contentious business is business which is not “contentious business” as defined by section 87 (1) of the Solicitors Act. That definition is:
“contentious business” means business done, whether as solicitor or advocate, in or for the purposes of proceedings before a court or before an arbitrator… “
- The test is not whether the solicitor is the solicitor on the record; or whether he has conduct of the action. There are only two questions:
i) Was the work carried out by the solicitor as solicitor; andii) If so, was the work carried out for the purposes of proceedings?
- If those questions are answered affirmatively, then the business is contentious business, and section 57 of the Solicitors Act will not validate an agreement for a contingent fee for that business. On the facts found by the judge, the work that Gateley Wareing carried out in connection with the Matthews litigation was work carried by them in their capacity as solicitors. They were not retained in any other role. Moreover, although they did not have overall conduct of the Matthews litigation (and were not the solicitors on the record) that work was carried out “for the purposes” of the Matthews litigation. The work that Gateley Wareing carried out was therefore “contentious business”. In my judgment it was not validated by section 57 of the Solicitors Act. Thus the critical question is whether the retainer agreement was a conditional fee agreement as defined by section 58.
- The judge in effect held that section 58 (1) of the Courts and Legal Services Act did not apply to an agreement made by a solicitor who was not conducting litigation, but merely providing support services, because such an agreement was not within the definition of a conditional fee agreement. Thus the concluding part of section 58 (1) which invalidates “any other conditional fee agreement” did not apply, with the consequence that there was no need to rely on section 57 of the Solicitors Act.
- Mr and Mrs Rees argued that even if the retainer agreement fell outside the scope of section 58 it was unenforceable at common law on the ground that it was a champertous agreement. The judge rejected that argument essentially for the reason that led him to conclude that section 58 was not engaged. Again he held that there was a distinction to be drawn between a solicitor conducting the litigation and a solicitor performing some other role in relation to that litigation. Because the relevant litigation was at all times conducted by other solicitors on behalf of persons other than Mr and Mrs Rees, and was not conducted by Gateley Wareing, he held that it was outside the mischief of champerty at common law. In addition he held that Gateley Wareing did not take a direct share in the spoils of the litigation.
- Mr and Mrs Rees challenge both these conclusions. The argument on this part of the case runs as follows. At common law an agreement between a lawyer and his client to accept a contingent fee for the conduct of litigation has always been regarded as champertous, and hence contrary to public policy. The authorities are consistent to this effect: Wallersteiner v Moir (No 2)  QB 373; Giles v Thompson  1 AC 142, 153; Thai Trading Co v Taylor  QB 781, 788C-D; Awwad v Geraghty  QB 570, 593; R (Factortame Ltd) v Secretary of State (No 8)  EWCA Civ 932, QB 381 at  – ; Sibthorpe v Southwark LBC  EWCA Civ 25,  1 WLR 2111 at .
- However, legislation has intervened to validate certain kinds of conditional fees and contingent fees. The legislation applies only to lawyers. It does not apply to others such as expert witnesses (R (Factortame Ltd) v Secretary of State (No 8) at ) or claims and recovery agents (Papera Traders Co Ltd v Hyundai Merchant Marine Co Ltd  EWHC 2130 (Comm),  2 All ER (Comm) 1083). Where legislation has provided for conditional fees and contingent fees to be lawful in certain cases, those cases must be taken to be the limits of what is permissible, and the courts should not create any further cases: Awwad v Geraghty at 593G, 600E; R (Factortame Ltd) v Secretary of State (No 8) at . As Schiemann LJ put it in Awwad v Geraghty:
“… acting for a client in pursuance of a conditional normal fee agreement, in circumstances not sanctioned by statute, is against public policy.”
- Acting for a client in pursuance of a contingent fee agreement is an a fortiori case. In the same case May LJ said:
“I accept the general thesis … that modern perception of what kinds of lawyers’ fee arrangements are acceptable is changing. But it is a subject upon which there are sharply divergent opinions and where I should hesitate to suppose that my opinion, or that of any individual judge, could readily or convincingly be regarded as representing a consensus sufficient to sustain a public policy. The difficulties and delays surrounding the introduction of conditional fee agreements permitted by statute emphasise the divergence of view. In my judgment, where Parliament has, by what are now (with section 27 of the Access to Justice Act 1999) successive enactments, modified the law by which any arrangement to receive a contingency fee was impermissible, there is no present room for the court, by an application of what is perceived to be public policy, to go beyond that which Parliament has provided.”
- Lord Bingham LCJ agreed with both judgments.
- Accordingly, once the judge came to the conclusion that the agreement fell outside the scope of section 58 of the Courts and Legal Services Act it followed that it was not an agreement of a kind that Parliament had sanctioned and the judge should therefore have held that it was unenforceable.
- In addition it is argued that the distinction that the judge drew between a solicitor who had the conduct of the litigation (and was the solicitor on the record) and a solicitor who provided support services was wrong. What matters, says Mr Fenwick, is that the solicitor has the right to conduct litigation, and does in fact provide services falling within the second limb of the definition of the right to conduct litigation (“to perform any ancillary functions in relation to proceedings”).
- The judge drew the distinction between solicitors who have conduct of the litigation and solicitors who perform ancillary services from his reading of the decision of this court in Factortame. It is therefore necessary to look at that case in a little more detail. After a long battle Spanish fishermen succeeded in their claim that the UK government had acted illegally in banning them from fishing in UK territorial waters. But their compensation remained to be determined. The claimants were represented by solicitors and counsel in the litigation.
- By this time many of them had run out of money, and those who had not were in financial difficulties. Among their creditors were Grant Thornton, a firm of chartered accountants who had provided substantial litigation support. In 1998 the remaining claimants entered into a new agreement with Grant Thornton under which Grant Thornton agreed to prepare and submit their claims for loss or damage in return for a fee of 8 per cent of the final settlement figure plus VAT. The court accepted the description of the services provided by Grant Thornton in the solicitors’ bill of costs. In essence it consisted of advising on, co-ordinating and playing a major role in the gathering of evidence about loss, particularly that within their expertise as chartered accountants. They were also instrumental in the instruction of independent experts and assisted and liaised with the experts and the legal team. They had major input into the devising of a computer program to model the claimants’ losses. They acted throughout in a supporting and advisory role to the claimants and their legal team. Some of the services that Grant Thornton provided (e.g. the collection of documentary evidence) could have been provided by the solicitors themselves, but most would more naturally have formed part of a package of forensic accountancy services. The judgment of the court (Lord Phillips MR, Robert Walker and Clarke LJJ) was delivered by Lord Phillips. He began his discussion at :
“When we come to consider the law of champerty we shall find that its application requires an analysis of the facts of the particular case. Special principles apply to those who are entitled to have the conduct of litigation, and in particular to solicitors.”
- The main question was whether the same principles applied to other professionals. Lord Phillips continued at :
“Section 28 of the Courts and Legal Services Act 1990 makes provision for those who have the ‘right to conduct litigation’. Such a right can only be granted by ‘the appropriate authorised body’. The Law Society is such a body. The Institute of Chartered Accountants is not. Thus accountants have no right to ‘conduct litigation’.”
- He pointed out that it was a criminal offence for an unqualified person to act “as a solicitor”. Thus at  he said:
“It is plain, in the light of this, that the ‘conduct of litigation’ which is reserved to a solicitor or other authorised person by section 28 of the 1990 Act must be given a restricted ambit. It cannot embrace all the activities that are ancillary to litigation and which are sometimes carried on by a solicitor and sometimes by a person who has no right to conduct litigation.”
- Grant Thornton had done nothing for which they required authorisation under section 28 and had not acted “as … solicitor”. It was against that background that the court construed section 58 of the Courts and Legal Services Act 1990. Lord Phillips encapsulated the argument at :
“There is an issue, however, as to whether the ‘conditional fee agreements’ explicitly permitted, and those that are implicitly unenforceable, by reason of the provisions of section 58, are restricted to agreements concluded by solicitors and others authorised to ‘conduct litigation’, or whether they extend to agreements by any person or body providing services ancillary to the conduct of litigation.”
“‘Conditional fee agreements’ under section 58 embrace only agreements for the provision of litigation or advocacy services concluded by those with rights to conduct litigation (section 28) or those with rights of audience (section 27).”
- Thus far the distinction that the court drew is between those entitled to (or with rights to) conduct litigation and those who are not so entitled and have no such rights. A solicitor, whether or not heexercises the right to conduct litigation, is in the former category. This is made clear by what the court said both at  and ; and also in the way that the issue was defined at  and resolved at .
- In explaining why the court had resolved the issue as it had Lord Phillips referred to the context of the 1990 Act, and said that it was natural to read section 58:
“… as applying to the provision of advocacy and litigation services by those authorised in accordance with the earlier sections to exercise rights of audience or conduct litigation. There is nothing in the section which suggests that it is intended to apply to the provision of services ancillary to the conduct of litigation by the many different categories of person who have, in the past, been accustomed to assist with the conduct of litigation.”
- Thus far, then, the court was dealing with those entitled to conduct litigation. A solicitor is entitled to conduct litigation by virtue of his status as a solicitor: see Courts and Legal Services Act 1990 section 33.
- There are, however, parts of the judgment in which the court used narrower language. Thus at  in referring to subordinate legislation (while accepting that subordinate legislation cannot alter the meaning of primary legislation) the court noted that the regulations used the phrase “legal representative” and commented:
“The term “legal representative” is appropriate to describe a person conducting the litigation, or exercising rights of audience on behalf of the litigant. It is not appropriate to describe persons, such as Grant Thornton in the present case, who are providing services ancillary to those provided by those conducting the litigation.”
- In our case there is nothing inappropriate in describing Gateley Wareing as Mr and Mrs Rees’ “legal representative”. On the contrary, that is precisely what they were. At  to  the court referred to Parliamentary exchanges and said:
“These passages confirm our view that the legislative intent was that the provisions of s.58 of the 1990 Act were intended to apply only to those who could be described as ‘litigators’, that is advocates and those conducting the litigation.”
- But those exchanges were prompted by concern about “the disparities between lawyers and non-lawyers”. Again it was the question of status rather than activities that was discussed.
- The court then referred to the well-known statement of the underlying reasons why contingency fees are unacceptable taken from the judgment of Buckley LJ in Wallersteiner v Moir (No 2)  QB 373. The two policy reasons that Buckley LJ gave were these:
“It may, however, be worthwhile to indicate briefly the nature of the public policy question. It can, I think, be summarised in two statements. First, in litigation a professional lawyer’s role is to advise his client with a clear eye and an unbiased judgment. Secondly, a solicitor retained to conduct litigation is not merely the agent and adviser to his client, but also an officer of the court with a duty to the court to ensure that his client’s case, which he must, of course, present and conduct with the utmost care of his client’s interests, is also presented and conducted with scrupulous fairness and integrity.”
- The first point, namely that a solicitor’s role is to advise his client with a clear eye and an unbiased judgment seems to me to be equally pertinent even if the solicitor is not in overall control of the litigation. Even in non-contentious business it is that policy that underpins a solicitor’s fiduciary duty not to put himself in a position in which there is a conflict between his own interests and that of his client.
- So far as the second point is concerned, a solicitor, whether or not he is conducting litigation, is an officer of the court. It is for that reason that the court exercises a summary jurisdiction to compel performance of solicitors’ undertakings, often in routine conveyancing transactions. A solicitor’s duty to the court derives from his status as a solicitor, not from the nature of the work that he performs. In Trendtex Trading v Credit Suisse  1 QB 629, 663 Oliver LJ also emphasised the importance of a solicitor’s status as an officer of the court:
“There is, I think, a clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests may conflict with their duties to the court by agreement, for instance, of so called “contingency fees”.”
- I would hold, therefore, that section 58 of the Courts and Legal Services Act 1990 applies to those who, by virtue of their status as solicitors, are entitled to conduct litigation (and to others who have that entitlement). That, however, is not necessarily the end of the road. Section 58 authorises certain kinds of “conditional fee agreement” and invalidates “any other conditional fee agreement”. If an agreement does not fall within the definition of a “conditional fee agreement” it is neither authorised by section 58 nor expressly invalidated by it. A “conditional fee agreement” is defined principally by section 58 (2) (a) which relevantly provides:
“… a conditional fee agreement is an agreement with a person providing … litigation services…”
- If Gateley Wareing were not providing litigation services then the agreement falls outside both the scope of the authorisation and also the scope of the express invalidation. This is the result of the decision of this court in Gaynor v Central West London Buses Ltd  EWCA Civ 1120,  1 WLR 1045. It was held in that case that merely advising someone that they had a good case and writing a letter of claim, did not amount to the provision of litigation services. In the course of his judgment Dyson LJ (with whom Auld LJ and Sir Martin Nourse agreed) said at :
“It is important to bear in mind that the object of section 58 of the 1990 Act and the Regulations is to provide protection to clients: see Hollins v Russell  EWCA Civ 718,  1 WLR 2487, paras 100, 105, 107. The need for that protection is predicated on the assumption that the solicitor will in fact provide litigation or advocacy services. If such services are not provided, the client has no need of protection. Section 58(2)(a) defines a CFA as an agreement with a person providing advocacy or litigation services, which provides for his fees and expenses for those services, or any of them, to be payable only in specified circumstances. The words that I have emphasised are critical to this appeal. A provision in an agreement as to the costs payable in respect of services which are not advocacy or litigation services as defined in section 119(1) is irrelevant to whether an agreement is a CFA. This is consistent with regulation 1(3) of the Regulations which defines “client” as including, except where the context otherwise provides, a person who “(a) has instructed the legal representative to provide advocacy or litigation services to which the conditional fee agreement relates”.” (Emphasis in original)
- It was because of Gaynor and its emphasis on the actual provision of litigation services that counsel agree that we need not resolve the dispute about the interpretation of the retainer.
- The question under this head, then, is whether Gateley Wareing were providing litigation services. The judge dealt with this issue at :
“I have considered how to apply the approach of the court in a case, unlike Factortame itself, where the person with whom the agreement is made is a solicitor, who has “a right to conduct litigation”, but who is not conducting the litigation. I consider that the relevant distinction made in the judgments is between a person who is conducting litigation and a person who is not. The second category should apply equally to a solicitor and to a non-lawyer, where neither is conducting the litigation, even though the solicitor has a right to conduct litigation. In such a case, the solicitor who is advising a non-party and who is not conducting the litigation is not “exercising, or contemplating exercising, a right to conduct litigation” within section 119.”
- For the reasons I have given I consider that the distinction drawn by the judge was wrong, and that the true distinction is between (i) solicitors (and those who have the right to conduct litigation) and (ii) others who do not. Thus in my judgment the judge’s reasoning in this part of his judgment starts from a mistaken premise. How, then, should one approach the definition of litigation services in section 119? The definition refers to “any services which it would be reasonable to expect a person who is exercising, or contemplating exercising, a right to conduct litigation in relation to any proceedings or contemplated proceedings, to provide.” This is not the same as “all services.” If, for example, a solicitor issued proceedings (which is one part of the right to conduct litigation) but took no further part in them, it would to my mind be contrary to the policy underpinning section 58 for him to be entitled to a share of the spoils under an agreement for a contingent fee (as opposed to a conditional fee) which section 58 does not permit. Moreover, if an agreement was not a conditional fee agreement (as defined) unless the person entitled to the fee carried out all the functions of a person with the conduct of the litigation, that would have been a very short answer to the issues in Factortame. In our case Gateley Wareing performed ancillary services. We are therefore concerned with the second part of the definition of the right to conduct litigation (“any ancillary functions in relation to proceedings (such as entering appearances to actions)”).
- In Factortame the court held at :
“It is plain … that the ‘conduct of litigation’ which is reserved to a solicitor or other authorised person by section 28 of the 1990 Act must be given a restricted ambit. It cannot embrace all the activities that are ancillary to litigation and which are sometimes carried on by a solicitor and sometimes by a person who has no right to conduct litigation.”
- There is no doubt that, in the present case, whatever Gateley Wareing did, they did as solicitors. Some of their activities (such as drafting instructions to counsel to advise on the litigation) are quintessentially the sort of activities that a solicitor exercising the right to conduct litigation would be expected to do. So, too, is the drafting of witness statements.
- I would hold, therefore, that if Gateley Wareing performed tasks ancillary to the litigation that would otherwise have been carried out by Wedlake Bell they were exercising the right to conduct litigation (at least in part) and hence providing litigation services (albeit not all of them). On the judge’s findings of fact, in my judgment they were.
- Gateley Wareing’s fees were “payable only in specified circumstances”; namely in the event that Mr and Mrs Rees made recoveries. Accordingly in my judgment the 5 August 2002 retainer was (or at least became) an agreement within the definition of conditional fee agreement in section 58 (2) of the Courts and Legal Services Act.
- Mr Fenwick points out, with some force, that if the judge’s conclusion is correct, solicitors (who are not on the record as acting for a party to litigation) can carry out work which would ordinarily have to be done by solicitors on the record, and can do so in exchange for a percentage of the recoveries in the litigation. That would permit solicitors to side-step all statutory controls in respect of contingency fee agreements and CFAs by not going on the record and instead, by assisting or supporting solicitors on the record, as Gateley Wareing assisted Wedlake Bell in this case. Given that the rules in respect of CFAs are designed to provide a significant degree of control and protection, and CFAs themselves are a statutory carve-out from the previous prohibition on solicitors taking any interest in the outcome of litigation, Mr Fenwick submits that the judge’s conclusion, that as long as solicitors are not actually on the record they can participate in litigation in this way in exchange for a percentage fee without complying with section 58, must be wrong.
- For the reasons I have given, I agree.
- It is, in my judgment, clear that the statutory policy at the time with which we are concerned was to prohibit contingent fees paid for the provision of litigation services. This is underlined by the decisions of this court in both Awwad v Geraghty at 593G, 600E and also in Factortame at . In such cases there is no need for a minute examination of the common law: Parliament has prescribed what is and is not acceptable.
- In those circumstances there is no escape from the conclusion that the manner of performance of the retainer of 5 August 2002 turned the contract into one that the law will not enforce. It follows, in my judgment that Gateley Wareing are not entitled to enforce the retainer agreement in the events which have happened. Mr Randall argued that unless the retainer agreement was enforceable clients in the position of Mr and Mrs Rees would suffer, because a solicitor would have to charge his ordinary hourly rates. I do not agree. It would have been open to Gateley Wareing to have entered into a conditional fee agreement that complied with section 58. I can see no real difficulty in doing so.
It is important to note that this case turned on the meaning of providing litigation services. It further illustrates the caution with which the courts treat any form of agreement which is not specifically authorised as a conditional fee agreement.