WANT TO WORK HARD, WIN AND STILL NOT GET PAID? WHEN THE CFAS DID NOT COVER THE COSTS: BAD NEWS FOR SOLICITORS AND COUNSEL
The judgment today of Mr Justice Warby in Radford -v- Frade  EWHC 1600 (QB) contains an important warning in relation to the construction of CFAs both for solicitors and counsel.
- A solicitor entered into a CFA with clients which limited the scope of the work to be done to arguing points in relation to service. There were both individual clients and corporate clients.
- The individual defendants were successful in arguing the had not been properly served.
- The case continued in relation to the corporate clients and the solicitor, and counsel, continued to act.
- The claim was dismissed on the defendants’ summary judgment application and the claimants ordered to pay the defendants’ costs.
- It was held that the CFA that the defendants entered into determined the type of work to be done. Defeating the claims against the defendants on “service” represented a “win”.
- However all the work done after the hearing in relation to service was not covered by the CFA.
- The solicitors were not entitled to be paid for the work done after that date.
- There was no residual or ongoing retainer outside the CFA.
- Similarly Leading Counsel was not entitled to be paid for the work done after the defendants had succeeded on the service points.
- A rectification of the CFA agreement could not impact upon liability to pay because it was made after the order to pay costs was made.
- A solicitor entered into conditional fee agreements with a number of defendants.
- The original CFA was with individual defendants but not corporate defendants.
- The claim against the individual defendants failed because they had not been properly served.
- The caimants’ claims against the remaining defendants were struck out and the claimants ordered to pay costs.
- The Master held that most of the costs incurred after a key date (when the claims against the individual defendants failed because of non-service)were not recoverable as they were not covered by the CFA.
The CFA used was the standard Law Society model for personal injury which had been adapted by a costs professional. It was narrowly defined to cover only part of the litigation.
What is covered by this agreement?”
- Your claims against Michael Radford and the Michael Radford Partnership in claim number HQ103026433 to have the proceedings against you dismissed, to set aside the interim injunction, any assessment of damages under the cross undertaking, and any ancillary applications such as seeking an anti-suit order;
- Any appeal by your opponent;
- Any appeal you make against an interim or final order on our advice during the course of the case;
- Any proceedings you take to enforce a judgment order or agreement;
- Negotiations about and/or a court assessment of the costs of this claim (including detailed assessment proceedings and CPR part 8 proceedings between you and your opponent arising out of any costs order made in your favour in this matter to recover costs and/or any insurance premium).
- All work undertaken in relation to initial interview and evaluation of the claim including all work of and incidental to the preparation of this agreement and the application for adverse costs insurance.
ii) What is not covered by this agreement?
- 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.
- Any appeal you make against our advice.
THE MASTER’S CONSTRUCTION OF THE AGREEMENT
. The Master stated:
(1) This was a bespoke CFA, constructed by Mr Daulby to cater for the unusual circumstances of the case. Mr Daulby’s initial letters to the clients showed that he felt unable to carry out a merits assessment and was focusing on the procedural aspects of the case, for reasons he sets out in his letter.
(2) Mr Daulby’s witness statement shows, at paragraphs 6, 9, 10 and 12, that he knew that the defendants’ Spanish lawyers intended to pursue claims in Spain and not the UK; that his focus was on the procedural issues; that he considered the factual situation too complex to form a view on the overall merits, such as would be necessary to allow “the type of risk assessment that is necessary when entering into a CFA”; and that he “wanted to enter into an agreement that would not commit counsel and his firm to fighting the claims to a full trial”.
(3) “This focus on procedural issues is carried further” in the list of issues contained in the risk assessment attached to the CFA.
(4) The defendants’ aim was to have the injunction lifted and “the whole focus of the proceedings at that time was in relation to procedural issues. … At the time the CFA was entered into, the overall merits of the claim had not been contemplated and were being left for the Defendants’ Spanish lawyers to deal with.”
(5) The words “your claims”, when used to define the scope of the CFA can therefore only be construed as referring to “procedural issues relating to service, jurisdiction and the Defendants’ damages claim under the undertaking.”
(6) The words in the CFA defining “what is not covered by the agreement” are entirely consistent with this view. 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.”
(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.
“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.”
UPHOLDING THE MASTER’S DECISION
Mr Williams has failed to persuade me that the Costs Judge erred in his construction of the CFA. His analysis of the Judge’s reasoning is flawed, in my view. The Judge did not start with an interpretation of the contractual words, and then treat that meaning as cut down by the parties’ subjective intentions or the risk assessment document or letter. He loyally followed the principles identified by Lord Hoffmann in the Investors Compensationcase, by construing the contractual wording in its factual context. The Judge had ample justification for concluding that a reasonable person in the factual situation that obtained at the time the CFA was entered into would understand the words “your claims … to have the proceedings against you dismissed” to refer and to refer only to procedural applications of a kind that existed, had already been identified by the defendants and notified to the court, formally or informally: those that were in the parties’ contemplation at the time of the agreement.
The context in which the phrase “your claims … to have the proceedings against you dismissed” was one in which, unusually, the solicitors had gone out of their way to cut down the scope of the work which they were to undertake on a CFA. They had made clear to their clients (a) that they were willing to undertake work on a CFA if they could make an assessment of the risks involved; but (b) that they were unable to make an assessment of the substantive merits of the claim. The parties expressly excluded any work in relation to “any claim against [the defendants] by your opponent”. Plainly, the parties were deliberately excluding any obligation to do any work defending the claim on its merits.
The words “Your claims …” seem to be standard Law Society wording. They are not particularly suitable as a description of interim applications. Nonetheless, they were not altered in the process of drafting this agreement. The most important point about them is that they indicate something in existence, or at least contemplated at the time. The words “Your claims” are followed by a list of specific issues which had in fact been notified to the court by the defendants as matters they wished to pursue, and/or discussed with TH. The list of specific topics, although it is inclusive not exhaustive in form, indicates that the “claims” referred to have a narrow and specific scope, limited to “claims” that have been considered, or matters similar to, and allied or ancillary to those claims. As Mr Hutton QC puts it, they are “a shorthand way of identifying something in existence at the time.”
I do not accept that it was an error to have regard to the risk assessment. On the contrary, it would have been wrong to ignore it. The document not only forms part of the factual matrix, it forms part of the contractual documentation. It therefore cannot properly be described as “extraneous”. It is a fundamental principle of contractual interpretation that regard must be had to the entire contract. In Jones v Wrexham Borough Council  1 WLR 1599 the Court of Appeal applied that principle to the construction of a CFA. Waller LJ said at :
“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…”
The issue in Jones was whether the CFA was one within Regulation 3A of the Conditional Fee Agreement (Miscellaneous Amendments) Regulations 2003 under which “the client is liable to pay his legal representative’s fees and expenses only to the extent that the sums are recovered in respect of the relevant proceedings” (known as a “CFA lite”). But the exercise was one of construing the agreement. In my judgment the risk assessment was part of the “whole package” in this case. Its contents were of legitimate concern to the clients, not least because they formed the justification for imposing on the clients a substantial costs liability in the event of success.
Again, Mr Williams’ criticism of the Judge seems to me to involve a mistaken analysis of his reasoning. The Judge did not start with a contractual interpretation and treat the risk assessment as “amending” or “curtailing” it, or as overriding or altering that interpretation. He treated the risk assessment as one factor in arriving at a single conclusion on the true construction of the key CFA wording. He was clearly justified in that approach. The risk assessment does serve the purpose of explaining the solicitors’ reasons for setting the success fee at the chosen level. But it is also a contemporaneous statement by the solicitors to their clients, identifying their understanding of the clients’ aim, the issues with which they would be dealing, the nature of the risks they were taking on in doing so, and what would amount to success. It is therefore objective evidence as to the scope of the work for which the parties intended to contract. It supports the narrow interpretation of the words “your claims…” which the Costs Judge adopted.
As for the Covering Letter. this is an “extraneous” document in that, unlike the risk assessment, it does not form part of the contractual documentation. But in a broader sense it is part of the “package”. It is part of the factual matrix, as Mr Williams accepted in the course of argument. The Judge was not wrong to take account of it. As it happens, it is not obvious to me that he placed great weight on this document. But he was entitled to regard it as a communication between the contracting parties which could have “affected the way in which the language of the document would have been understood by a reasonable man.” It is proper, in construing the CFA, to give weight to the fact that the Covering Letter identifies the role of TH and Counsel as “to deal with the procedural position in England”. These were words of limitation, distinguishing the procedural issues from the substantive merits of the claim.
Although the Costs Judge’s citation of passages from Mr Daulby’s witness statement might appear, if viewed in isolation, to place some reliance on the subjective intentions of TH, I do not believe that is a fair reading when regard is had to the context in which those citations appear. Mr Williams made clear that he was not suggesting that the Costs Judge had made impermissible use of the evidence filed by his clients, and rightly so in my view. The Costs Judge was well aware that the exercise calls for an objective assessment. Much of what Mr Daulby said was evidence of the factual matrix at the time, though it did not really add to what was evident from the documents of which the parties had shared knowledge. If, and to the extent that, the passages cited went beyond that, the Costs Judge was in my judgment doing no more than underlining the fact that his objective interpretation of the contractual wording was consistent with what Mr Daulby says were his subjective aims and intentions.
The Judge’s reliance on what the parties contemplated at the time was not wrong. He did not treat this as a principle of interpretation. He treated it as an element of the factual matrix in which the parties used the words about “your claims …”. He was right to do so. It is of course open to the parties to a CFA to define the work covered by the agreement in such a way that it extends to work involving claims and/or defendants other than those in contemplation at the time of the agreement. This is often done, and examples were provided in the course of argument. The question here however is whether that is what these parties did, by the particular wording they used in this CFA. I consider the Costs Judge was right to conclude that they did not.
The way the reasonable person would have seen this at the time is, put bluntly, that TH did not want to risk working without reward on anything other than the procedural applications challenging service and jurisdiction which were in the contemplation of the parties at the time of the CFA. They were unwilling to do work under a CFA which involved addressing the merits. It is not a good enough answer to point, as Mr Williams does, to the get-out clause. That would have allowed TH to end the agreement if they thought the clients were “unlikely to win”. But it by no means follows that they were happy to take on work of wider scope. The perceived merits of the client’s position are not the only factor that can influence a lawyer’s decision on whether or not to undertake work on a CFA. The lawyer will normally consider the scale as well as the degree of risk. On the wider interpretation, the CFA would have obliged TH to work on a merits-based application to dismiss, provided it was “likely” to succeed, whatever the scale of the commitment involved. TH themselves had made quite clear that they saw the task of assessing the merits as a huge one, and the case as a vastly expensive one to fight.
I do not accept Mr Williams’ further submission, that the “narrow” interpretation is at odds with the principle that the court should lean towards a construction of a solicitor’s retainer that favours the client. The meaning of these words in their context is in my view clear enough to make that principle redundant in this case. Nor do I think it obvious that the interpretation advocated by the defendants is one that favours them. By choosing to enter into a CFA that covered any application to dismiss, of whatever kind, they would have exposed themselves to an additional liability to TH of uncertain scope, which was potentially very substantial. At the time the agreement was made that was a contingent liability, and the defendants might have thought it would be met by their opponents if it matured. Nonetheless, as this was not a “CFA-lite” the defendants’ liability would have attached whether or not there was any recovery from the claimants.
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.
WAS THERE ANY OTHER FORM OF RETAINER?
The Sole Retainer Issue
“The second question is whether the Defendants can recover costs from the 23rd May 2012 pursuant to a retainer entered into with the First and Second Defendants on 4 July 2011 and with the Fourth and Fifth Defendants on 8 August 2011. To my mind there is no doubt that the letter of 4 July 2011 creates a liability that whatever the outcome of the case, a liability for costs remains with the Defendants. The letter of 8 August 2011 must also be read as though it applies to the Fourth and Fifth Defendants as well. Mr Williams submitted that the Defendants therefore remain contractually obliged to pay for the work done albeit without a success fee pursuant to the principles stated in Adams v London Improved Motor Coach Builders Ltd  1 KB 495. The CFA entered into by the Defendants in August 2011 supersedes that retainer. 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. For those reasons I reject the submissions of Mr Williams and prefer the arguments advanced by Mr Hutton in that regard.”
Mr Williams advances two main criticisms of this analysis. First, whilst accepting that there is no difficulty in the conclusion that the CFA superseded the original retainer in respect of the work to which the CFA related, he submits that there was no basis for concluding that the CFA also revoked the retainer in respect of work which the CFA specifically excluded. Why, he asks rhetorically, would the CFA revoke the prior retainer in respect of work to which the CFA did not apply? The proper analysis is that work outside the scope of the CFA remained covered by the terms of the Retainer Letter. In support of this argument he points to the fact that the Retainer Letter was reissued at the same time as the CFA was sent to the clients for acceptance, and the retainer described in that letter is broad, encompassing the defence of the claim.
As Mr Hutton concedes, this last point has some superficial attraction. It is however substantially met by the answer he offers. The Retainer Letter served a number of purposes, not all of which were met by the CFA. One of these is compliance. I believe I can take judicial notice of the existence of regulatory requirements for the provision of client care letters. But regardless of that, the Retainer Letter and its accompanying “Information for Clients” document contain a range of provisions regulating the overall relationship between solicitor and client, which are not to be found reflected in the CFA. These are provisions which any prudent solicitor would wish to ensure were in place between him and his client. These include provisions as to conflict of interest, the responsibilities of the parties, confidentiality, limitation of liability, and a host of other matters. For these reasons it made complete sense for TH to send a Retainer letter to their new clients, the corporate defendants, even if the intention was for them to enter into a CFA. Furthermore, it remained at this point for the clients to decide whether they wished to enter into the CFA. It was at that stage an offer, not a contract. For these reasons the reissue of the Retainer Letter does not in my view serve to contradict or undermine the Costs Judge’s conclusion.
The question remains of whether the Costs Judge was wrong to conclude that the CFA revoked the extant “traditional” retainer in its entirety. This is again a question of what the parties meant by their agreements, objectively assessed. The last sentence of Mr Daulby’s paragraph 10 (see  of the November Ruling) was either his after-the-event analysis of the situation, or evidence of his subjective intentions. Either way, it is inadmissible as an aid to the resolution of this issue. I do not consider it to represent the true position, objectively assessed. Analytically, it seems to me, the Costs Judge’s conclusion amounts to a finding that the parties agreed, upon entering into the CFA, to discharge the existing retainer and replace it with that agreement. In my judgment that is a proper interpretation of their conduct at the time. The reasonable person, looking at the Covering Letter, the CFA and the other enclosures against the background of the previous exchanges between TH and the defendants, would conclude that the CFA was being offered as one of the “alternative ways of funding your case” referred to in the Information for Clients document. The offer to the clients, which they accepted, was to substitute the traditional retainer with a more limited CFA.
Significant factors in reaching that conclusion are TH’s advice to the clients that the case would be hugely expensive to defend (see  above); and the fact that, as TH well knew, the clients were quite unable to fund the litigation from their own resources. This second point is reflected in paragraph  of the November Ruling. But it is spelled out most emphatically in another passage in Mr Daulby’s witness statement where he says: “It was simply inconceivable that the Defendants would be able to afford to fund the trial of an action of all the issues raised in the Particulars of Claim”. Granted, the substitution of the CFA for the “traditional” retainer left open what would happen if the procedural applications failed or, as happened in the event, were only partially successful. But it is clear that the parties were focussing exclusively on the jurisdiction and service points at this stage, and that they were fairly optimistic as to the prospects of success of the procedural applications.
Mr Williams’ second submission is that there was no basis, evidential or otherwise, for the Costs Judge’s finding as to the “reasonable expectations” of the defendants. The defendants, who are commercial clients, agreed to a CFA which they knew was limited in scope. They then instructed TH to perform work which was, and which on any view they must have known to be, outside its scope. That work included, on any view, drafting the defence and counterclaim. If the Costs Judge was right on the construction issue, it also included the application to strike out or for summary judgment. Even if the CFA served to revoke the original retainer, there would be no basis for concluding that the defendants had any expectation that work outside the scope of the CFA would be carried out for nothing.
In support of this second criticism, Mr Williams relies on the common law principle that where a solicitor is acting with the knowledge and approval of a client, then (at least for the purpose of satisfying the indemnity principle inter partes) the client will be assumed to be liable to pay for the solicitors’ services unless the solicitor has agreed to work gratuitously. The principle is referred to not only in the decision cited by the Costs Judge, Adams v London Improved Motor Coach Builders Ltd, but also in more recent decisions. In Kellar v Williams  UKPC 40  Lord Carswell, giving the advice of the Privy Council, said this:
“… the original arrangement between the respondent and his attorneys was an informal one, such as is commonly encountered, that they would undertake the litigation for him, without entering into any contentious business agreement by which the rates of charge were governed. As such it was inherent in the agreement that it was not intended to be gratuitous, but the hourly rates or other charges were not discussed or agreed. In these circumstances the law will imply an agreement to pay a reasonable rate, on the basis set out by Lord Atkin in Way v Latilla  3 All ER 759 at 763:
“But, while there is, therefore, no concluded contract as to the remuneration, it is plain that there existed between the parties a contract of employment under which Mr Way was engaged to do work for Mr Latilla in circumstances which clearly indicated that the work was not to be gratuitous. Mr Way therefore is entitled to a reasonable remuneration on the implied contract to pay him quantum meruit.”
Here, submits Mr Williams, TH were acting in the course of business, for commercial clients engaged in a commercial dispute. There is no finding nor is there any suggestion that TH agreed to work for nothing. So the defendants are liable in any event to pay a reasonable sum for the work done by TH which was outside the scope of the CFA.
These too are beguilingly attractive submissions. One instinctively recoils from the notion that clients can instruct lawyers to defend a claim, and to make an interim application for its dismissal and then, when the lawyers have succeeded in doing what they were asked to do, refuse to pay them at all. The notion that the clients could have a “reasonable expectation” of getting something for nothing under those circumstances is deeply unattractive. But I have concluded that this argument involves a mis-reading of paragraph  of the November Ruling. The Judge’s reference to the “reasonable expectations” of the defendants reflected his objective assessment of their state of mind at the time. Importantly, he was not suggesting that they would have expected to get something for nothing, come what may. He was not saying that there was an expectation that services would be provided on a pro bono or other gratuitous basis. There was no evidence that any such arrangement had ever been discussed or contemplated. His conclusion, properly understood, was that the defendants would not expect to have to pay for their lawyers’ services win or lose. Put another way, they would not consider that the lawyers were on a conventional retainer.
Mr Hutton’s opening argument on this issue was that the evidence demonstrates that until very recently TH have consistently maintained the opposite of their present case. Their case has been that all the work after 23 May 2012 was done on a conditional fee basis. This is indeed how they put their case, as most clearly shown by the bill of costs presented for assessment after the event, and the Reply submitted in the assessment proceedings. But it is not how the Costs Judge reasoned, nor is it in my view a legitimate approach in law. The parties’ contractual intentions in and after May 2012 are not to be determined by reference to their post-contractual conduct: James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Limited  AC 583. I accept, however, Mr Hutton’s ultimate submission: that in substance what the Judge was saying is that a reasonable person in the position of the defendants would have thought that work outside the scope of the CFA of August 2011 was being done on a conditional fee basis.
That submission is consistent with a point made by Mr Williams in argument on the scope point. He submits that in any other context that issue would be easy to resolve: the court would conclude that the parties had by their conduct agreed to vary their existing CFA by extending its scope; but that this could not be the answer here because the law requires a CFA to be in writing. I see the force of that line of argument, and in my judgment it applies in the present context. It reflects the reality as the Costs Judge rightly saw it: the conduct of these parties does suggest an implied retainer, but not one of the conventional variety; it clearly indicates an unwritten retainer on a conditional fee basis. A reasonable person with all the knowledge these parties possessed would conclude that the common intention of the parties after 23 May 2012 was that the lawyers should be paid (and entitled to a success fee) if they won, but not otherwise.
I note in parenthesis that Mr Hutton appears to be right in his submission that the parties did not take any of the steps that one would expect if the retainer had continued on a “conventional” basis after 23 May 2012, such as (on TH’s side) rendering interim bills and seeking payments on account. But I do not rely on that in reaching my conclusions. It was not something relied on by the Costs Judge, is not raised by way of a Respondent’s Notice, and there was little argument on its relevance.
There has been much debate between Counsel about a line of authority that evidences a “relaxed” or “attenuated” approach to the implication of a liability to pay, where the context is a dispute between the successful party and the paying party, rather than between solicitor and client. Mr Williams points to a summary of the jurisprudence in Thornley v Lang  EWCA Civ 1484,  1 WLR 378 -. At  Lord Phillips MR, giving the judgment of the court, referred to cases where litigants are funded by third parties such as trade unions, and summarised the position in this way:
“When defeated by such a litigant, unsuccessful parties have, on occasion, invoked the indemnity principle in an attempt to avoid paying costs. The argument advanced has been that the successful litigant is not liable for his costs and, therefore, has no right to recover them. The courts have had no truck with such arguments. They have defeated them by finding that, in the circumstances under consideration, the litigant comes under an independent obligation, albeit one that is unlikely to be enforced, to pay the fees of the solicitor who is acting for him”
The line of authority includes the Adams case cited by the Costs Judge, Davies v Taylor (No 2)  AC 225, 230, Lewis v Averay (No 2)  1 WLR 510, CA, and Kitchen v Burwell Reed & Kinghorn  EWHC 1771 (QB),  1 Costs LR 82 (Gray J). Mr Williams accepts that these authorities, all concerned with third party funding, do not strictly cover the present situation. But he submits that they are illustrative of a policy by which the courts seek (as Gray J put it in Kitchen at ) “if they properly can, to avoid a construction of an agreement which will involve a breach of the indemnity principle because of the unfairness consequent upon such a conclusion”. The unfairness is of course the windfall for the paying party, at the expense of the successful litigant’s lawyers. Secondly, Mr Williams submits that these principles reinforce the conclusion that the Costs Judge was wrong. That is because in the absence of a conclusion that the defendants were at least impliedly liable to pay for the work done, the claimants will avoid paying for work which has unquestionably been performed by TH, from which the defendants have unquestionably benefitted, and which the conduct of the claimants themselves unquestionably necessitated.
It is easy in the abstract to see the force of this line of argument, and the attractions of the approach reflected at  of Kellar v Williams. But that attraction fades, once the true position as identified in the November Ruling is appreciated. On a proper analysis the reason that TH are not entitled to recover for work done after the August 2011 CFA had been exhausted by the “win” achieved on 23 May 2012 is not that the court has taken an unduly strict approach, and declined to imply an agreement to pay. The reason is that the implied agreement to pay is a CFA, and TH failed to take the precaution of ensuring that this CFA was reduced to writing so as to satisfy s 58(3)(a) of the Courts and Legal Services Act 1990.
A related issue which has been debated on these appeals is the extent to which the paying party is entitled to be treated as standing “in the shoes” of the successful party, when it comes to taking points about the rights of that party’s lawyers to be remunerated for their work. The paying party has, submits Mr Williams, “a smaller footprint” when stepping into the client’s shoes. He points out that if the court allows the paying party full rein it may end up giving effect to unattractive points that are not, and would not be taken, by the client. Mr Williams cites, albeit in another context, an example of the court declining to permit this. In Forde v Birmingham City Council  EWHC 12 (QB),  1 WLR 2732 Christopher Clarke J upheld the validity of a retrospective CFA (“CFA 2”), entered into between solicitor and client on the eve of a settlement, in the knowledge that the existing arrangement (“CFA 1”) might be vulnerable to challenge. The paying party alleged undue influence. Christopher Clarke J rejected the challenge, holding at  that the client, Ms Forde, had been “prepared to assist her solicitors recover their fees despite the challenge to the validity of CFA 1”, and that it would be “entirely understandable for her not to seek to rely on the unattractive contention that [the solicitors] should get nothing at all for what they had done …”
The observations of Christopher Clarke J were however made in a specific context. They fall a long way short of a decision that the paying party’s freedom to take points about the recoverability of fees is constrained by some criterion of reasonableness. In any event, in the present context the ultimate bars to recovery are an unexceptionable approach to the assessment of the parties’ contractual intentions, coupled with a statutory provision disabling a lawyer from recovering under an unwritten CFA. There is no room for a finding that the point at issue here is one lacking in broad merit that is not properly open to the paying party.
The Counsel’s Fees Appeal
The effect of my conclusion on the Sole Retainer Issue is to uphold the Master’s finding that, as I read him, TH had no enforceable retainer after 23 May 2012. It remains to consider Mr Williams’ contentions that the Costs Judge was wrong to find (1) that it follows that Counsel has no right as against the defendants to recover his fees for work done thereafter; (2) that Counsel has no right in any event to be paid for any work he did for the corporate claimants.
(1) As is usual, Counsel’s CFA was an agreement between Counsel and the solicitors. Counsel’s CFA was undated, but it is agreed that it was made on or about 6 July 2011. That was just a couple of days after TH sent the Retainer Letter and Advice Letter to the individual defendants. So Counsel’s CFA was made at a time when TH’s own retainer was a conventional one, in which the clients would pay them win or lose.
(2) Counsel’s CFA named all of the defendants as parties to the action, but it did not name all of the defendants as his clients. Those named as clients were only the first three defendants (although the third defendant ended up playing no part in the proceedings). The corporate defendants were not named. That is unsurprising, as TH had no retainer from the corporate defendants at that time.
(3) It was not until about a month later that TH offered a CFA, and the question arose of extending the scope of TH’s retainer to encompass the corporate defendants. The earliest that can be shown to have been in contemplation is Friday 5 August 2011 when, according to the Covering Letter, Mr Daulby discussed the CFA with the individual defendants. It appears that in that conversation it was agreed that TH would be retained by the corporate defendants as well. The CFA and the reissued retainer letter which Mr Daulby sent on Monday 8 August 2011 included the names of the corporate defendants.
(4) Counsel’s CFA covered the entire case. That is unsurprising, as TH’s retainer was itself unlimited in scope at the time. That retainer was, as set out in the Retainer Letter, “to consider and advise you in relation to the defence of the claim against you by Michael Radford and the Michael Radford Partnership.”
(5) The definition of “win” in Counsel’s CFA was however in the same terms as those that later appeared in the solicitors’ CFA (see the November Ruling , at paragraph 9 above). This is consistent with the evidence of Mr Daulby, that he and AUQC had discussed a strategy of bringing the proceedings to an end via procedural challenges to jurisdiction and service, rather than fighting the whole action: see the November Ruling -, paragraph 8 above). Evidently, TH decided to use the same definition of “win” in their CFA, when that came to be drafted.
(6) Counsel continued to act even after the claim against the individual defendants failed for want of service. He settled the Defence and Counterclaim of the corporate defendants, and acted for them in their application to strike out or for summary judgment.
(7) On 30 July 2015, having been alerted to the potential problem that Counsel’s CFA did not name the corporate defendants as his clients, Counsel and TH executed a deed of rectification (“the Deed”). This varied the terms of the CFA so that it expressly named the corporate defendants as Counsel’s clients, as well as the individual defendants. This was during the currency of the assessment proceedings and, of course, well after the orders giving rise to the right to costs.
(8) Before the Costs Judge the defendants maintained that the Deed gave effect to the original intention, that Counsel would represent all of the defendants. Their case was that the failure to name the corporate defendants was merely oversight. It was pointed out that, in the event, Counsel did indeed act for all of the defendants.
The retainer point
The Costs Judge’s determination was that “Counsel’s fees may not be recovered after 23 May 2012, given the court’s prior ruling that the Defendants’ solicitors had no valid retainer after that date.” Mr Williams argues that on a true analysis recovery of Counsel’s fees was never conditional, as between TH and the defendants. His fees for work done after the CFA came to an end are charges which the defendants are contractually obliged to defray pursuant to that agreement. Under the terms of TH’s CFA, he submits, Counsel’s fees were payable win or lose.
Clause 10 of the CFA made provision for “Payment for Advocacy”. It said that advocacy by TH “forms part of our basic charges”. Two scenarios for payment of Counsel were provided for: one for “Barristers who have a Conditional Fee Agreement with us”, and one in which Counsel was not acting under a CFA with TH. In the latter scenario the CFA provided that “these fees are treated as a disbursement” payable win or lose, and normally recoverable from the opponent in the event of a win. In the former scenario, the clause said:
“If you win, you are normally entitled to recover [the Barrister’s] fee and success fee from your opponent. The Barrister’s success fee is shown in the separate Conditional Fee Agreement we make with the Barrister … We will discuss the Barrister’s success fee with you before we instruct him or her. If you lose, you pay the Barrister nothing.”
Mr Williams submits that the effect of these provisions is to oblige the defendants to pay TH whenever TH was liable to pay Counsel, and that liability to reimburse TH did not end with the CFA. I do not agree. The obligation to pay Counsel’s fees arose only in the event of a win and, more importantly, only in respect of work done within the scope of the defendants’ CFA with TH.
The language quoted above is somewhat opaque, when it comes to the client’s obligations to pay Counsel’s fees in the event of a win. But it is unequivocal in stating that the client has no obligation in respect of Counsel’s fees “if you lose”. “Lose” must refer to failure as defined in the defendants’ CFA with TH. The implication is that where Counsel is on a CFA the client will have a liability in respect of Counsel’s fees if, but only if, “success” as defined in the client/solicitor CFA is achieved. Clause 10 ties the obligation to pay Counsel to the definition of success in the solicitors’ CFA with the client.
There can however be no obligation to pay Counsel in respect of work that the solicitors were not authorised to instruct Counsel to undertake. This was an agreement for the provision of legal services of a defined scope, governed by the sections of the CFA headed “What is covered …” and “What is not covered …” The agreement permits the solicitors to incur liabilities to third parties and to claim an indemnity from the client in respect of those liabilities, but there is nothing in the CFA that confers authority to incur liabilities that are not related to work within its scope. It seems to me that fees that (a) become due from TH to Counsel acting under a CFA with TH and (b) are payable by the clients pursuant to clause 10 of TH’s CFA are properly understood as disbursements within the meaning of the CFA. Clause 13(f) defines “Our disbursements” as “payments we make on your behalf such as … Barrister’s fees”. This is underlined by the wording of the Retainer Letter defining disbursements as “Payments we have to make to third parties on your behalf in the course of acting for you“. (The emphasis is mine in each case).
The scope point
(1) The defendants had not shown that Counsel was entitled to rectification of his CFA. To establish such a case there had to be “convincing proof” that the parties “had a common continuing intention, there was an outward expression of accord and the intention continued at the time of the contract but the contract did not reflect that common intention”: Chartbrook v Persimmon Homes  UKHL 38 and Swainland Builders v Freehold Properties Ltd  2 EGLR 71. There was no such convincing proof. The corporate defendants were not clients of TH at the time that Counsel’s CFA was entered into. It was not until 8 August 2011 that the corporate defendants were added to the list of TH clients. They were not, the Costs Judge found, contemplated as clients at the time of Counsel’s CFA. There could not therefore have been any outward expression of accord at the relevant time. Their omission at that time was not merely a mistake.
(2) Nor could the Deed be relied upon to make good the earlier omission. The variation occurred ex post facto, after the defendants had been awarded their costs. It would be wrong in law to allow a claim for costs to be increased by a variation agreed after the order relied on as creating the liability.
(3) For those reasons Counsel’s costs could not be recovered “in relation to work carried out specifically for [the corporate defendants] in relation to the Bill of Costs the subject of detailed assessment.” (It is clear from paragraph  of the January Ruling that the Costs Judge’s intention was to limit the bar on recovery to costs that related “purely to” or “solely to” the corporate defendants.)
Mr Williams identifies what he says are three errors in the Costs Judge’s approach to this issue. First, he submits the Judge was wrong to proceed on the basis that the costs of representing the corporate defendants could only be recovered by the corporate defendants themselves. The individual defendants are entitled to recover those costs. It is not in dispute that the individual defendants were parties to the CFA with Counsel. That CFA covered the whole of the action brought by the claimants. Counsel was instructed to act for the corporate defendants, under the CFA. The individual defendants are liable to pay for that, and can recover the costs of doing so. Since the corporate defendants are owned and controlled by the individual defendants, there is nothing surprising or wrong in that.
This is not an argument that was expressly addressed in the January Ruling, but Mr Hutton accepts that it was argued below, and is open to the defendants on this appeal. The argument does not involve any piercing of the corporate veil. It concerns the true interpretation of AUQC’s retainer by TH on behalf of the individual defendants. The submission is that AUQC was retained on behalf of those two defendants to defend the claims against the corporate defendants. This is an ingenious argument, and there is no reason in principle why such an arrangement should not be made. But in my judgment that is not the agreement that was entered into.
“32 … At the time that counsel’s CFA was entered into it was not in the contemplation of Mr. Daulby that the fourth and fifth defendants were his clients. … I am not persuaded that at the time the agreement was entered into that Mr. Daulby had considered the fourth and fifth defendants and their position. I say so on the basis that it was not until August 2011 he realised and revised his own CFA to join in the fourth and fifth defendants into his CFA.
34 … It is clear to me, from looking at the facts of this case, that it was not in the contemplation of counsel and solicitors in July 2011 that they were acting for the fourth and fifth defendants.”
Mr Williams does not challenge those conclusions, but he is right in my judgment to say that his argument raises a short question of construction that cannot be rejected on the basis of findings as to the subjective intentions of the contracting parties. However, on an objective assessment of the words used by TH and AUQC on or about 6 July 2011 in the factual context disclosed by the evidence, I do not think the parties can be taken to have had a common intention to engage AUQC to act in the defence of the corporate defendants. The Retainer Letter and Advice Letter were both sent to the individual defendants. The Advice Letter considered their position, and referred to the fourth and fifth defendants’ position in a way that militates against the view that TH considered at that time that they were to work on their defence. There is no, or no adequate, evidence that the position of the fourth and fifth defendants was considered prior to 5 August 2011, when their addition as clients of TH was discussed.
Mr Williams submits that if Counsel’s CFA did not cover the work he did in relation to proceedings against the corporate defendants, that work must have been done pursuant to a conventional retainer. The argument is on the same lines as Mr Williams’ argument on the Single Retainer Issue: Counsel was instructed to act, and there was no agreement to act pro bono. If the work was outside the scope of the CFA the conclusion can only be that there was an implied retainer under which Counsel was entitled to a reasonable fee. The end point of this alternative submission is that the Costs Judge should have found that Counsel’s basic fees (but no success fee) were recoverable in respect of work done defending the corporate defendants.
Mr Hutton responds that this submission could only succeed, if at all, as against TH. It could not succeed as against the clients, whose liability is governed by their agreement with TH. That is a partial answer. As I have already found, the August 2011 CFA with TH does not impose a liability for Counsel’s fees for work done outside the defined scope of that CFA. But some of the work done by Counsel for the corporate defendants was within the scope of the August 2011 CFA. He represented the corporate defendants in relation to the jurisdiction and service applications. In relation to that work the problem is that if, as I would be inclined to accept, TH impliedly retained Counsel to represent the corporate defendants, the implied retainer was a CFA which cannot be enforced because it was not in writing.
Mr Williams’ final submission is that the Judge was wrong to conclude that the Deed could not be relied on. He does not seek to challenge the Judge’s conclusion that a claim to rectification would have failed, for the reasons given by the Judge. He argues, however, that it was an error of approach to treat the corporate defendants’ liability as dependent on whether Counsel could have secured rectification in a contested action. The parties to the CFA did not contest that issue. The Deed is an agreement between those parties, which is binding upon them. It imposes an obligation on the corporate defendants. The question for the Costs Judge was, submits Mr Williams, whether that agreement was reasonable. If it was, the obligation which it imposed can be relied on as a basis for recovering reasonable costs from the claimants. For similar reasons, Mr Williams argues, it was an error to treat the timing of the agreement as fatal to the claim for costs. “Whether the [Deed] cures a challenge under the indemnity principle does not depend on the punctum temporis at which the deed was executed. It depends on whether the agreement embodied by the deed was reasonable – as the defendants contend it was.”
In its developed form the argument is that the Deed, although purporting to be a rectification of the original CFA amounted to a consensual variation of the original retainer. Because the variation involves the addition of two entirely new parties, the substance of Mr Williams’ position is that the parties entered into an entirely fresh agreement. Mr Williams relies on Forde v Birmingham City Council (above) as authority that there is nothing wrong in principle with a retrospective CFA. I accept that the decision of Christopher Clarke J is authority for that proposition. However, CFA 2 in that case was made before the point in time at which costs became payable. Mr Hutton submits, and I accept, that this is a critical distinction, and that a party may not claim costs in reliance on a retrospective agreement entered into after the making of the costs order which it is sought to enforce.
The leading authority is the Privy Council’s decision in Kellar v Williams (above). This was an appeal from the Court of Appeal of the Turks & Caicos Islands. The respondent, Williams, had been successful in litigation. Costs orders were made in his favour in 1993 and 1995. The Privy Council found, as reflected in the passage cited above, that the original retainer was an implied one which entitled Williams’ lawyers to recover a reasonable fee. When first submitting bills for taxation in 1996 the lawyers quantified their costs on the basis of hourly rates plus brief fees. The Chief Justice ruled in another matter that this could not properly be done, if it involved double-charging. The lawyers then agreed with Williams a varied method of calculating costs. Revised bills were submitted in 2000, stripping out the brief fees, and revising the hourly charges. The Court of Appeal and the Board had to consider the effect of the variation. The key passages in the Board’s advice are these:
“13. … The Chief Justice held, first, that the variation of the charging basis agreed in April 2000 was ineffective as against the paying party, because it had been made after the order for costs had been made and so should be disregarded.
14. The appellants appealed to the Court of Appeal, which affirmed the decision of the Chief Justice, though on differing grounds.
20. Their Lordships are not satisfied that the arrangement proposed in the letter of 6 October 2000 between the attorneys, if it had been accepted by the respondent and the firm acting for him, constituted any change of substance in the fee paying agreement between them. … If, however, it were likely to produce a larger costs bill than the original framework, an amalgam of hourly rates and brief fees (which appears to be unlikely from the terms of the letter), the appellants’ attorneys would be entitled simply to refuse to accept the amended basis and require the respondent to revert to the original framework. They could do so on the ground, as the Chief Justice correctly held, that that amendment had come into existence subsequent to the making of the costs [order] and so could be disregarded by the paying party if he wished.”
In Oyston v The Royal Bank of Scotland plc  EWHC 90053 (Costs) Senior Costs Judge Hurst followed Kellar v Williams. The client and his solicitor had entered into a CFA in 2002 which provided for a success fee of 100% of reasonable costs, plus £50,000 if the claimant recovered damages in excess of £1m. This was a champertous agreement at common law which failed to comply with s 58 of the 1990 Act. In July 2005 the claimant obtained a costs order. Thereafter he and his solicitors entered into a Deed of Variation which omitted all reference to the £50,000. Had the agreement been in this form from the outset it would have complied with s 58 and been enforceable. The Judge held the Deed was “ineffective to rectify the situation as against the paying party.” He explained:
“Following the decision of the Privy Council in Kellar it cannot be right that a Deed of Variation can be used to impose a greater burden on the paying party than existed before judgment. The fact that the client is in agreement is of no assistance. If the position were otherwise it would be open to solicitors and their successful client to, for example, alter the level of success fee late in the day.”
Mr Williams submits that the reasoning in Kellar is opaque. Forde shows that a retrospective CFA can be made, and there is no discernible reason in principle why the right to make and enforce such an agreement should turn on whether it is made before or after the costs order. The enforcement of such an agreement does not offend the indemnity principle, and the paying party is always and sufficiently protected by the fact that only reasonable costs can be recovered.
I accept of course that the key point about the indemnity principle is to ensure that costs awards are no more than compensatory. I agree that the enforcement of such a retrospective agreement would not of itself offend the principle. The costs claimed would remain costs due from the client to the lawyer. The amount payable could still be controlled through the assessment process. But Mr Williams’ argument overlooks the question of what it is that a party is entitled to be compensated for. That, as I see it, is the point that underlies what the Privy Council said in Kellar. The underlying rationale is in my judgment that the effect of a costs order is to create a liability to pay, subject to assessment, those costs which a party has paid or is liable to pay at the time the order is made. The liability to pay costs crystallises at that point and, although its quantum will remain to be worked out, that process must be governed by the liabilities of the receiving party as they stand at that time. To allow enforcement of a retrospective agreement which increases those liabilities would be to alter retrospectively the effect of the court’s order.
This seems to me to be a rational and principled basis on which to justify drawing the line in the way approved by the Privy Council. It has the additional benefit of being pragmatic, as it obviates manoeuvres of the kind described by Senior Costs Judge Hurst. It may be open to parties by a post-judgment agreement to reduce the amount the client owes the lawyers, in which case the paying party would obtain the benefit. But it is not permissible to increase the amount due under a costs order by using an agreement entered into after the order was made. Here, at the time of the costs orders nothing was recoverable under the implied CFA, which was unenforceable. As in Oyston, it was too late to rectify the position after the costs orders were made.