IS A CONDITIONAL FEE AGREEMENT A CONTENTIOUS BUSINESS AGREEMENT? WELL, IT DEPENDS… (& IT HAS CONSEQUENCES)

In Healys LLP v Partridge & Anor [2019] EWHC 2471 (Ch) Kelyn Bacon QC, sitting as a Deputy High Court Judge, considered the issue of whether a conditional fee agreement was a contentious business agreement.  This has practical consequences in that a contentious business agreement can only be enforced by using Part 8.

 

“the Court of Appeal’s comment at §93 of Hollins v Russell unambiguously supports the proposition that a CFA will in principle be a contentious business agreement for the purposes of Part III of the 1974 Act”

THE CASE

The claimant solicitors issued proceedings, using the Part 7 procedure,  for moneys they said were due under a conditional fee agreement.  One of the issues was whether the CFA was a contentious business agreement.

THE JUDGMENT ON THIS ISSUE

The judge considered the arguments in relation to whether this was a contentious business agreement or not. He held that this CFA was.
    1. The Partridges’ case as to the correct basis of the claim and the manner in which it should be continued turns on the interpretation of the Solicitors Act 1974 (the “1974 Act”), and in particular the way in which a solicitor can sue for unpaid fees that are said to be due under a CFA. Two specific questions arise. The first is what the correct procedure is for a claim for payment of solicitors’ fees said to be due under a contentious business agreement. The second is whether the CFA in this case is indeed a contentious business agreement.
Enforcing a contentious business agreement
    1. The courts have historically exercised considerable caution when enforcing an agreement between a client and a solicitor as to the solicitors’ fees. Even before the enactment of specific legislation addressing this issue, the position was as described by Fletcher Moulton LJ in Clare v Joseph [1907] 2 KB 369, at 376, that such agreements
“were … viewed with great jealousy by the Courts, because they were agreements between a man and his legal adviser as to terms of the latter’s remuneration, and there was so great an opportunity for the exercise of undue influence, that the Courts were very slow to enforce such agreements where they were favourable to the solicitor unless they were satisfied that they were made under circumstances that precluded any suspicion of an improper attempt on the solicitor’s part to benefit himself at his client’s expense.”
    1. The court’s inquiry was therefore “directed to the question whether the agreement was fair and reasonable”: Lord Alverstone CJ in the same case, at 372.
    2. These concerns were addressed in the Attorneys and Solicitors Act 1870, which provided that the courts would enforce a written agreement between a solicitor and a client setting out the terms of the solicitor’s remuneration, subject to certain safeguards. One of those was the requirement in s. 4 of the Act that, prior to the enforcement of an agreement “in respect of business done or to be done in any action at law or suit in equity”, the taxing officer had to be satisfied that the agreement was fair and reasonable.
    3. That provision and related provisions of the 1870 Act were the precursors to Part III of the 1974 Act, which sets out a series of provisions relating to the remuneration of solicitors. Those provisions draw a distinction between non-contentious business agreements and contentious business agreements.
    4. Contentious business agreements are defined by s. 59 of the 1974 Act as follows:
“(1) Subject to subsection (2), a solicitor may make an agreement in writing with his client as to his remuneration in respect of any contentious business done, or to be done, by him … providing that he shall be remunerated by a gross sum or by reference to an hourly rate, or by a salary, or otherwise, and whether at a higher or lower rate than that at which he would otherwise have been entitled to be remunerated.”
    1. Subsection (2) provides that ss. 59–63 of the Act are not to be regarded as giving validity to various types of agreements, including (relevantly for present purposes):
“(b) any agreement by which a solicitor retained or employed to prosecute any action, suit or other contentious proceeding, stipulates for payment only in the event of success in that action, suit or proceeding”.
    1. Sections 60–63 of the 1974 Act go on to set out the effects of making a contentious business agreement. The provision relied upon by the Partridges in this case is s. 61, which provides in relevant part as follows:
“(1) No action shall be bought on any contentious business agreement, but on the application of any person who –

(a) is a party to the agreement or the representative of such a party; or

(b) is or is alleged to be liable to pay, or is or claims to be entitled to be paid, the costs due or alleged to be due in respect of the business to which the agreement relates,

the court may enforce or set aside the agreement and determine every question as to its validity or effect.

(2) On any application under subsection (1), the court –

(a) if it is of the opinion that the agreement is in all respects fair and reasonable, may enforce it;

(b) if it is of the opinion that the agreement is in any respect unfair or unreasonable, may set it aside and order the costs covered by it to be assessed as if it had never been made.”

    1. Mr Edwards, representing the Partridges, said that the effect of this section is that where the agreement is a contentious business agreement a solicitor cannot sue for his costs by bringing a CPR Part 7 claim. Instead, the court has jurisdiction under an application brought under Part 8 or Part 23, to determine whether the agreement is fair and reasonable. If it is, it may be enforced by the court; if not, then the agreement is to be set aside and the costs are simply to be assessed as if the agreement was not made.
    2. Mr Edwards also relied on CPR Part 67.3(2), which provides that:
“A claim for an order under Part III of the [Solicitors Act 1974] must be made –
(a) by Part 8 claim form; or
(b) if the claim is made in existing proceedings, by application notice in accordance with Part 23.”
    1. Mr Manley, representing Healys, disputed this construction of s. 61. While he accepted that a Part 8 or Part 23 application was the correct procedural route for proceedings that only concerned the assessment of costs, where there was no dispute as to liability to pay the costs at all, he contended that neither s. 61 nor CPR Part 67 precluded the commencement of a Part 7 claim where there was a dispute as to whether there was any liability to pay the solicitors’ costs under the agreement at all.
    2. I consider that Mr Edwards’ construction of s. 61 is correct. The opening words of s. 61(1) are quite specific: “No action shall be brought on any contentious business agreement …” It is necessary to give some meaning to those words. The correct interpretation, I consider, is that a contentious business agreement does not, in itself, give rise to a cause of action on the basis of which a claim for costs may be brought. Rather, the agreement must first be submitted for the determination of whether it is fair and reasonable. Only once that determination has been made can the court enforce the agreement (if it is found to be fair and reasonable) or simply proceed to an assessment of costs (if the agreement is not found to be fair and reasonable).
    3. S. 61 provides in both subsections (1) and (2) that in order to obtain a determination of whether the agreement is fair and reasonable an application to the court must be made. Such an application is in my view a claim for an order under Part III of the 1974 Act, which pursuant to CPR Part 67.3(2) must be made either under Part 8 or (if made in existing proceedings) under Part 23.
    4. I note that this construction is supported by Cooke on Costs (2019). §3.11 of Cooke, which was relied upon by Mr Manley, suggests that a solicitor can sue for his fees in the High Court using a Part 7 claim form (while noting that the more usual procedure will be to apply to have the costs assessed by using Part 8 or Part 23). §§8.13–14 indicate, however, that while this is the case where payment is sought of fees due under a non-contentious business agreement, the position for a contentious business agreement is different. In relation to the latter:
“The agreement itself does not give a cause of action and before a solicitor can rely on it, he must apply to the court for leave to enforce the agreement. Equally, the client may apply to the court to set it aside. Both applications are made under CPR Part 8. The outcome will depend on whether or not the court is of the opinion that the agreement is fair and reasonable …”
    1. At first blush this might appear to be an arcane procedural technicality. In fact, however, the particular procedural route reflects a point of some substance, namely that s. 61 provides for a specific layer of protection for the client in relation to a contentious business agreement, in that no cause of action will arise under the agreement unless and until the court has determined that the agreement is fair and reasonable.
Whether the CFA is a contentious business agreement
  1. The remaining question is whether the present CFA is a contentious business agreement. Mr Manley’s position was that a “pure” CFA as used in the present case, where no fees are recoverable in the event of failure, cannot be a contentious business agreement. Relying on the definition of a contentious business agreement in s. 59 of the 1974 Act, he said that this type of CFA is not an agreement providing that the solicitor “shall be remunerated”. That was reinforced, he said, by the proviso in s. 59(2)(b). He also relied on the judgment of Master Campbell in Addleshaw Goddard v Wood [2015] EWHC B12 (Costs), which at §§68–72 appears to have proceeded upon the assumption that a CFA would not (or at least not normally) be regarded as a contentious business agreement.
  2. Mr Edwards disputed that submission. He submitted that the CFA in this case falls squarely within s. 59, being an agreement where the remuneration is specified “by reference to an hourly rate”, even if that is conditional upon success. He referred to Hollins v Russell [2003] 1 WLR 2487[2003] EWCA Civ 718, where the Court of Appeal observed at §93 that “it became clear that a CFA is a contentious business agreement to which section 60(3) of the Solicitors Act 1974 … applies”. He also noted that in Vilvarajah v West London Law [2017] EWHC B23 (Costs) a CFA was treated as a contentious business agreement, and was set aside pursuant to s. 61 as being unfair and unreasonable.
  3. On this point, again, I consider that Mr Edwards is correct. On the plain and natural reading of s. 59(1), a CFA is an agreement as to the solicitor’s remuneration, and an agreement such as the present CFA which sets out an hourly rate is an agreement where the remuneration is set by reference to an hourly rate. It matters not, in that regard, whether the CFA provides that the remuneration is to be reduced or extinguished altogether in the event of failure.
  4. If anything, the proviso in s. 59(2)(b) reinforces that interpretation. The effect of the proviso is that s. 59(1) and other provisions of the 1974 Act do not, themselves, render valid a conditional fee agreement – the point being that at the time that the Act was originally adopted, conditional fee agreements were unlawful under common law. The fact that it was thought necessary to include the proviso in s. 59(2)(b) indicates, therefore, that a conditional fee agreement might in principle fall within s. 59(1). Put another way, if the definition of a contentious business agreement in s. 59(1) completely excluded a conditional fee agreement, then the proviso in s. 59(2)(b) would have been unnecessary.
  5. While the two first instance costs judgments cited to me appear to have proceeded on different assumptions as to whether a CFA could be regarded as a contentious business agreement, the Court of Appeal’s comment at §93 of Hollins v Russell unambiguously supports the proposition that a CFA will in principle be a contentious business agreement for the purposes of Part III of the 1974 Act. Mr Manley’s answer was to say that this comment did not sit well with the statutory wording. It follows from what I have said above that I do not accept that submission. Hollins v Russell is entirely consistent with the wording of s. 59.
  6. That does not of course necessarily mean that every CFA will be a contentious business agreement for the purposes of Part III of the 1974 Act. I note, for example, that the Law Society’s model form CFA for personal injury and clinical negligence cases contains a specific clause providing that the agreement is not a contentious business agreement within the terms of the 1974 Act. Without expressing any view on the construction and effect of agreements containing a clause of that nature, I note that the present CFA contained no such clause, nor anything else to suggest that it should fall outside the scope of the s. 59 definition.

THE RESULT

The judge held that the action should continue as if it were commenced under Part 8.