£50,000 COSTS INCURRED: £500,000 ALLOWED: HOW DID THAT HAPPEN?
The decision of Mr Justice Spencer in Bolt Burdon Solicitors -v- Tariq  EWHC 811 (QB) is an interesting consideration of non contentious business agreements.” The judge found that an agreement which meant that the solicitors recovered 50% of the damages claimed was both reasonable and enforceable.
“There is on the face of it an obvious disquiet in permitting solicitors to recover fees of some £400,000 for work which might otherwise have been billed, on the basis of hourly rates, at only some £50,000. However, on proper analysis this ignores the commercial realities which faced the parties when the Agreement was made. In truth the Agreement represented a speculative joint business venture in which the solicitors were taking all the risk and the client was exposed to no risk at all.”
The defendants sought compensation under the Financial Conduct Authority Redress Scheme for losses caused by an interest rate swap.
- On instructing the solicitors the claimant made it clear that they only wished to proceed on a “no win no fee” basis.
- The judge found that it was the defendants’ suggestion that a contingency fee be entered into which provided for the claimant to recover 50% of any sums recovered.
- When a substantial payment was offered the defendants disputed the claimant’s right to recover 50% of the sum.
- The agreement was terminated by the defendants.
- The total hours spent by the claimants indicated £50,439.49 if charging had been done on a conventional basis.
The judge upheld the claimant’s claim and gave judgment for the full sum of £498,083.52. The judge:
- Rejected an argument based on the defendants’ expectation that the 50% was net (after payment of tax).
- Rejected an argument that the agreement did not cover disbursements (it clearly did).
- Rejected arguments of misrepresentation.
Rejected an argument that the agreement was “unreasonable or unfair”.
“In the light of these findings and all the evidence in the case, I am satisfied that the Agreement was not “unfair”. Mr Tariq knew exactly what he was agreeing to. He was a very experienced businessman. He was determined that he should pay nothing for Bolt Burdon’s services unless and until compensation was received from AIB. He was given an accurate assessment of the prospects of success. Had Mr Bishop told him that the prospects were nearer 20%, rather than “significantly less than 50%”, that could only have strengthened Mr Tariq’s determination that this was the right Agreement for him.
As to the suggestion of non-compliance with the SRA’s Code of Conduct, I am satisfied that Bolt Burdon fulfilled their duties having regard to the particular circumstances of the case. Realistically there was no funding option, acceptable to both parties, other than a Contingency Fee Agreement. The possibility of an offer being made by AIB before Bolt Burdon had done any work at all pursuant to the Agreement was something which no-one could have foreseen. Nor, on my earlier findings in this judgment, was it in fact the case because Bolt Burdon were, I have found, an effective cause of the making of the March offer. I also observe that it was open to Mr Tariq to follow the course of referring the calculation of the Fee to an independent expert for determination, pursuant to clause 12 of the Agreement, but he chose not to do so.
In any event, looking at the circumstances as a whole, even though the letter of 22nd November pre-dated the signing of the Agreement and was not therefore part of the work done pursuant to the Agreement, the reality is that by the time the Agreement was signed on 21st January Bolt Burdon had preserved the opportunity of pursuing the claim. That is part of the relevant circumstances to which the court is entitled to have regard, as Mr Edwards properly conceded at the end of his reply in closing submissions.
As to the suggestion of a conflict of interest, it could be said of any contingency fee agreement, where the solicitors’ remuneration is proportionate to the amount of recovery, that there is a conflict between the solicitors’ wanting to obtain as their fee the largest possible percentage of the compensation recovered and the client’s interest in achieving exactly the reverse. There was no obligation on Bolt Burdon to suggest that Mr Tariq should obtain independent legal advice in relation to the terms of the Agreement. He did not need to be told this. There was no reason why he could not have sought advice from the solicitor who had acted for him for 30 years in his business affairs. He was put under no pressure of time to sign the Agreement. Quite the reverse, he took two months to sign it and did so only when he was satisfied that his precise requirements in relation to disbursements had been met.
THE AGREEMENT WAS NOT UNREASONABLE
I accept Mr Mallalieu’s submission that the court must be careful not to attach undue weight to the actual outcome in this case, rather than judging the reasonableness of the Agreement by reference to the circumstances as they existed and were perceived to be when the Agreement was signed. Mr Edwards also very properly accepted the need to avoid judging the issue by hindsight.
There is on the face of it an obvious disquiet in permitting solicitors to recover fees of some £400,000 for work which might otherwise have been billed, on the basis of hourly rates, at only some £50,000. However, on proper analysis this ignores the commercial realties which faced the parties when the Agreement was made. In truth the Agreement represented a speculative joint business venture in which the solicitors were taking all the risk and the client was exposed to no risk at all.
It is particularly important, in my judgment, to distinguish the potential consequences of this Contingency Fee Agreement from those of a conditional fee agreement. As the example given by Mr Mallalieu in closing submissions demonstrates, the client may well find himself worse off overall with a conditional fee agreement unless sufficient recovery of compensation is achieved.
Taking the figures in the present case by way of example (assuming profit costs of £50,000 on an hourly rate basis), had this been a conditional fee agreement with an uplift of, say, 300% (consistent with 25% risk) then a successful outcome of the claim would produce a fee of £200,000. That would be acceptable to the client if there were full recovery of £800,000, because the fee would be only half what it would be under a contingency fee agreement based on 50%. However, if the compensation recovered had been only £200,000, there would be the same liability to pay the £200,000 costs under a conditional fee agreement, whereas under the contingency fee agreement the fee would still be only 50% of the compensation, £100,000.
I have not overlooked the fact that the estimate of profit costs in the risk assessment for the authority to litigate, when the Agreement was proposed, was only £20,000. But the example I have just given illustrates the danger of concentrating on the outcome rather than the prospects and possibilities at the time of the agreement was signed. Recovery, if there was any at all, could have been far less than in fact it was. As it turned out, Bolt Burdon were very fortunate. But so was Mr Tariq. There is no reason, in my judgment why they should not share equally in that good fortune, as the Agreement always envisaged in reflecting their shared intention.
It is important to bear in mind that Bolt Burdon could equally well have incurred £50,000 in costs with no fee to show for it at all. It is true that if it became obvious that it was no longer commercially viable to pursue the claim Bolt Burdon had the right under clause 8 of the Agreement to terminate it. But if they did so, they were entitled to no fee at all.