WHEN LITIGATION LAWYERS SPLIT UP: THE FALL OUT CONTINUES: A SPLIT TRIAL WAS FAR FROM WISE…

In  FPH Law (a firm) v Brown (t/a Integrum Law) [2018] EWCA Civ 1629 the Court of Appeal dismissed the defendant’s appeal against a finding on a preliminary issue. There was a potential cause of action between two firms of solicitors for costs, even though the CFA upon which they had been paid had been held to be invalid.  The Court makes it clear that the order for a  trial of a preliminary issue should never have been made.

THE CASE

The claimants were bringing an action against the defendant who was a former partner in the claimant firm.  The defendant left the firm taking certain files with him and giving undertakings as to the payment of costs.  Those undertakings included providing the claimant with reasonable information about significant developments in the files.

One case settled and the defendant started the process of negotiating costs.  The defendant turned down an offer on costs of £70,000. The defendant informed the claimant of the offer but did not inform them that there were objections to the basic validity of the CFA.  The issue of costs was not settled and the CFA was found to be invalid, no costs were awarded. Indeed costs of £5,000 were awarded against the receiving party.

The claimant brought an action against the defendant claiming damages for the loss of chance of settling the matter. If they had been told of the challenge to the CFA they would have authorised settlement at £70,000 (the parties were only £6,000 apart). The defendant argued that since the CFA had been held to be invalid the claimant could not make a lawful claim against it.

THE JUDGMENT AT FIRST INSTANCE

The judge  at first instance was concerned with a preliminary issue of whether the claimant firm of solicitors was able to claim damages for loss of chance (she held that they were).   The case was looked at in detail in an earlier post 

THE COURT OF APPEAL JUDGMENT

The Court of Appeal upheld the judgment at first instance.  They rejected the defendant’s argument that the illegality of the CFA meant that the claimant could not bring an action.

THE LACK OF WISDOM IN ORDERING A SPLIT TRIAL

One point, made forcefully, in the judgment of Lord Justice Coulson, was the lack of wisdom in ordering a split trial on a preliminary issue in this case.

1. 1. The claimant brought proceedings against the defendant for damages for breach of his undertaking to keep them informed about Jarvis’ solicitors’ responses in the costs settlement negotiations. They allege that, if they had known that a point was being taken about the validity of the CFA, they would have instructed the defendant to accept the £70,000 which had been offered. In response, the defendant seeks to rely on the invalidity of the CFA as a complete defence to the claim, alleging that, because the claimant could not have recovered any costs from Mr Douglas under the terms of the invalid CFA, they cannot seek to recover such costs from the defendant by way of damages.

   2. On 2 December 2015, Deputy Master Partridge ordered that:

“There be determined as a preliminary issue the question of whether the claimant may seek to recover damages for the loss of a chance to receive a sum from the paying party in respect of costs incurred under a CFA in respect of which no costs were recovered on detailed assessment in consequence of non-compliance with Regulation 4 of the Conditional Fee Regulations 2000 by reason of public policy or otherwise.”

Speaking for myself, I find it hard to tease out the precise issue that fell to be decided as a result of this order. On one view, it was a type of reverse strike-out (can the claim be allowed to continue?) which is rarely a satisfactory basis for a Preliminary Issue.

1. 1. In addition to the opacity of the Preliminary Issue as ordered, I have grave doubts as to whether it was an appropriate course to take in any event, in circumstances where:

a) The defendant does not accept that the relevant undertakings applied to Mr Douglas’ file.

b) The defendant is now intimating a challenge to the (previously uncontested) proposition that he drafted the original CFA.

c) The problems with the CFA (as found by District Judge Smedley) concern the advice given at the time of the CFA. In the absence of a trial, there are no findings as to who gave (or failed to give) the relevant advice. As noted above, that person may have been the defendant.

d) A full trial should not have taken more than one day, and would have focussed on the real issues between the parties in a way that this Preliminary Issue has failed to do.

1. 1. In Woodland Trust v Essex County Council [2013] UKSC 66, Lord Sumption set out at paragraph 2 of his judgment the dangers of ordering a preliminary issue on a single pleaded issue when much else remained in dispute. I respectfully adopt those remarks here; they are equally applicable to the circumstances of this case. But none of that can be a criticism of Slade J. She was faced with a preliminary issue which had been ordered by somebody else and which she had no sensible alternative but to get on and decide.

   2. In her judgment, Slade J set out the relevant facts, and then summarised the contentions of the parties. She did this by reference to a large number of the authorities to which the parties referred. On analysis, most of those authorities turned out to be irrelevant to her decision, and are equally immaterial to this appeal.

   3. In her conclusions at [26], Slade J said that she was not in a position to decide whether CFAs which did not comply with the 2000 Regulations were illegal as well as unenforceable, but that it made no difference to the outcome of the Preliminary Issue. She then focused on the question of unenforceability, noting at [27] that the real issue turned on whether DJ Smedley’s ruling that the CFA was unenforceable was to be treated as having effect from the date from which he gave his judgment, or whether it related back to the date on which the CFA was originally agreed. At [29] Slade J said that the enforceability of any compromise of the costs claimed by Mr Douglas was to be assessed at the date it would or could have been entered into, had the defendant performed his obligations pursuant to the undertakings. She said:

“On the basis that the defendant was negotiating with the solicitors for Jarvis PLC in good faith and that there was a dispute over the enforceability of the CFA, a compromise of the claim for costs would be enforceable.”

1. 1. At [30] the judge said that “it must be assumed” that the defendant was negotiating with Jarvis’ solicitors “in good faith and had a genuine belief that it was reasonably arguable that the CFA was enforceable”. Conversely, at [31], she found that, if the defendant had known that the CFA was invalid, and there had been a compromise, Jarvis could subsequently have set aside and recovered any sums paid under such a compromise. Then at [33] she concluded:

“Accordingly, in my judgment whether the failure to comply with Regulation 4 rendered the CFA unenforceable, as found by DJ Smedley, was also illegal as contended by Mr Nicol, does not affect the claim for breach of contract which is to be determined on the facts of the date of the alleged breach.”

1. Having concluded the preliminary issue in favour of the claimant, Slade J went on at [34] to say that the assessment of quantum of damages for the loss of the chance of a compromise of the claim for costs might be affected by the decision that the CFA was unenforceable. She explained her reasons for that. Thus, she said that the claimant was entitled to seek to recover damages for the loss of a chance, but whether that claim succeeded would be determined at a trial. Her order of 14 July 2016 reflected that conclusion. By her order of 5 October 2016, after another lengthy hearing, Slade J refused permission to appeal and ordered that the costs of the preliminary issue be the claimant’s costs in the case.

2. On 27 April 2017, the defendant was granted permission to appeal to the Court of Appeal.

3. For the reasons set out below, I have concluded that, no matter how the Preliminary Issue case is analysed, Slade J’s conclusion was correct.