GET £15,000 FOR YOUR COSTS PAY £20,000 IN COSTS: CONDITIONAL FEE AGREEMENT UNFAIR AND UNREASONABLE AND WAS SET ASIDE

June 19, 2017 · by · in Conditional Fee Agreements, Conduct, Costs

In Vilvarajah -v- West London Law Limited [2017] EWHC B23 (Costs) Master Gordon Saker declared a conditional fee agreement unreasonable and set it aside. The history and circumstances of this action make for interesting reading.

“There is no correspondence between the Defendant and the Claimant about the conditional fee agreement. I would expect to see a letter from the Defendant to the Claimant in advance of the meeting … explaining the options clearly. I would expect that letter or a subsequent letter, still in advance of the meeting, to enclose a draft of the proposed conditional fee agreement and to explain its terms so that the Claimant would have an opportunity to consider it before the meeting and think about whether there was anything which required explanation. I would expect the solicitor to be able to produce an attendance note of the meeting at which the agreement was signed recording precisely what explanation she gave of it to the Claimant. I would then expect to see a letter sent to the Claimant after the agreement was signed enclosing a copy of the agreement and explaining the key points.”

THE CASE

The claimant instructed the defendant solicitors in relation to an action against him for professional fees  of some £20,000.  The retainer was eventually terminated and the defendant rendered a bill of £31,945.48.

  • The claimant issued proceedings for a detailed assessment of the bill.
  • That assessment was listed for one day.It was adjourned because there were significant discrepancies between the defendant’s bill, attendance notes and time recording ledger.
  • The claimant also issued an application to challenge the fairness of the conditional fee agreement they had entered into.
  • The Master concluded that the CFA was unreasonable and unfair and should be set aside.
  • The bill, originally at £31,945.48 was assessed at £15,230.00.
  • However the defendant was ordered to pay the claimant’s costs of the proceedings – assessed at £20,000.
  • In this judgment the master gives reasons for finding that the agreement was unfair and unreasonable.

 

THE MASTER’S CONSIDERATION OF THE CONDITIONAL FEE AGREEMENT

“The conditional fee agreement

    1. In relation to the Hodders Law claim the Claimant initially instructed the Defendant in September 2012 on a conventional basis. The letter of retainer dated 19th September 2012 (p.166 in the bundle) provided that the hourly rates of Mr Birang, Miss Yarranton and the trainee solicitors and paralegals would be respectively £350, £200 and £135 plus value added tax.
    2. On 7th January 2013 the Claimant and Defendant entered into a conditional fee agreement which was expressed to have retrospective effect from 5th December 2012. The agreement provided for a discounted hourly rate of £150 in respect of “all fee earners including solicitors, trainee solicitors and paralegals” which was payable whether or not the Claimant succeeded and a “primary” rate of £420 for all fee earners in the event that the Claimant succeeded. “Success” was defined as “reducing the amount of costs claimed” in the Hodders Law claim. If the Claimant succeeded in that claim and an award of costs was made against Hodders Law he would also be liable to pay a success fee of 64 per cent of the primary rate.
    3. The calculation of the success fee was explained in paragraph 4(h) of the agreement:

In exchange for us accepting the risk of payment at only 64.29% (approx) of our agreed primary hourly rate if you are unsuccessful, we are entitled to a risk success fee if you achieve success, amounting to a £270 (64%) increase on the primary rate, ie £690 per hour plus VAT.

    1. Paragraph 7(a) provided that if the agreement was terminated the Claimant would be liable to pay the Defendant’s “normal charges for all work done until termination date at £420 per hour plus VAT”.
    2. The possibilities therefore were:
i) The Claimant failed to achieve success (ie nothing was disallowed in the Hodders Law claim) in which event the Claimant would be liable to pay the discounted rate of £150 for all fee earners.
ii) The Claimant succeeded in having some sum disallowed in the Hodders Law claim in which event he would be liable to pay the primary rate of £420 for all fee earners.
iii) The Claimant succeeded in having some sum disallowed in the Hodders Law claim and was awarded costs against Hodders Law in which event he would be liable to pay the primary rate of £420 plus a success fee of 64 per cent for all fee earners (£690 per hour).
iv) The agreement was terminated in which event the Claimant would be liable to pay the primary rate of £420 for all fee earners.
  1. In the event it was the last possibility which occurred and all of the work whether done by Mr Birang (a Grade A fee earner), Miss Yarranton (a Grade B fee earner) or the Grade D trainees and paralegals was billed at £420 per hour plus value added tax.

THE FINDINGS OF UNFAIRNESS AND UNREASONABLENESS

Unfairness
    1. I was told in the course of the hearing that the business that the Claimant runs is a Londis shop and that it was that business which had given rise to the partnership dispute. There is no evidence that, at the time the conditional fee agreement was entered into, the Claimant was particularly sophisticated in legal matters or in the construction of documents, although he had been involved in litigation previously. Without hearing any evidence from him, it is difficult to reach a conclusion as to his level of understanding of English. However it is not in issue that English is not his first language and Miss Yarranton accepted that he required particular care when explaining things to him (2nd witness statement, para 23).
    2. For present purposes therefore I take the Claimant to be of average sophistication in relation to legal matters but requiring particular care when matters are explained to him in English. On that basis were the circumstances such that it can be said that the Defendant made an agreement with a client who fully understood and appreciated that agreement?
    3. The answer to that must be “no”. There is no correspondence between the Defendant and the Claimant about the conditional fee agreement. I would expect to see a letter from the Defendant to the Claimant in advance of the meeting on 7th January 2013 explaining the options clearly. I would expect that letter or a subsequent letter, still in advance of the meeting, to enclose a draft of the proposed conditional fee agreement and to explain its terms so that the Claimant would have an opportunity to consider it before the meeting and think about whether there was anything which required explanation. I would expect the solicitor to be able to produce an attendance note of the meeting at which the agreement was signed recording precisely what explanation she gave of it to the Claimant. I would then expect to see a letter sent to the Claimant after the agreement was signed enclosing a copy of the agreement and explaining the key points.
    4. I see many conditional fee agreements and by comparison with most this is a complicated agreement. On my first reading of it I did not pick up the distinction between success (when no success fee would be payable) and success plus an award of costs (when a success fee would be payable). Mr Mallalieu had to point that out to me.
    5. There is no suggestion that any risk assessment was carried out before the agreement was entered into and nothing to suggest that the Claimant was given any advice as to the prospects of success and thereby the likelihood that he would be liable to pay a substantial success fee on top of the primary rate.
    6. I cannot conclude that an explanation given in a 30 minute appointment, with no attempt at communication before or after, enabled the Claimant fully to understand and appreciate the terms of the agreement and in particular the liabilities that he was assuming.
    7. Accordingly in my opinion the agreement is unfair and should be set aside.

Unreasonable

  1. I have absolutely no hesitation in concluding that the agreement was unreasonable.
  2. The Hodders Law claim was a straightforward action in the County Court concerning, at most, about £65,000 (£20,000 claimed by Hodders Law and £45,000 already paid by the Claimant). The path it took, a transfer to the Senior Courts Costs Office for assessment of the bills (with or without a stay of the County Court proceedings), was also straightforward. The hourly rates agreed in September 2012 (£350, £200 and £135) were not unreasonable as between solicitor and client; although the Grade A rate was high for Outer London. Given the straightforward nature of the case, one would expect most of the work to be done by the Grade B fee earner (as indeed it was).
  3. £420 is an unreasonable rate for any of the fee earners involved in this case, whether as between solicitor and client or as between the parties. That is the sort of rate I would expect to see for a Grade A fee earner based in the City or Central London doing complex, high value work. Obviously it is even more unreasonable for the junior fee earners. The guideline hourly rates for Grade B and D fee earners respectively in Outer London are £172-£229 and £121.
  4. Nor can the primary rate be justified by reference to the discounted rate payable in the event that success is not achieved. In my experience it is very rare for no sum to be disallowed on a solicitor and own client assessment, whether the assessment is under the 1974 Act or not. A failure to achieve “success” (as defined in the agreement) in the Hodders Law Claim would be highly unlikely. It was therefore highly unlikely that the discounted rate would ever be payable. Further, given that most of the work in this sort of case would be done by the junior fee earners, the discount represented by the discounted rate for the Grade B was modest (25% less than the originally agreed rate). For the Grade D fee earners the discounted rate was actually higher than the originally agreed rate.
  5. The calculation of the success fee, which would increase the Claimant’s liability for the work done by all fee earners to £690, is peculiar. It is based not on any assessment of risk, but on the proportion of the discounted rate to the primary rate. As these are arbitrary figures, neither of them reflecting the market rate, so the success fee is also arbitrary.
  6. Crucially there is nothing to suggest that the Defendant gave the Claimant any advice that the primary rate was unusual or that there was no prospect at all that he would recover these rates from his opponent in the Hodders Law claim in the event that he was awarded costs in that claim. There would have been no prospect at all that the Claimant would recover £420 for any of the three grades of fee earners. Given the nature of the case it is unlikely that, between the parties, the solicitors would be allowed rates much higher than the guideline rates for summary assessment.
  7. In my opinion the conditional fee agreement was unreasonable and should be set aside.
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