CONDITIONAL FEE AGREEMENT WAS NOT UNFAIR OR UNREASONABLE: SENIOR COURT COSTS OFFICE DECISION TODAY

In Acupay System LLC v Stephenson Harwood LLP [2021] EWHC B11 (Costs) Costs Judge Leonard rejected a claimant’s argument that a conditional fee agreement it had entered into with a solicitor was unfair, unreasonable and not supported by consideration. (There are interesting observations about the method by which the claimant sought determination of these issues which I will look at in a later post).

THE FACTS

The claimant was a former client of the defendant solicitors. It applied for assessment of five bills rendered in 2020.  The outstanding balance was £339,613.75.

THE CONDITIONAL FEE AGREEMENT

The parties had worked under a conditional fee agreement.   That agreement offered a discounted hourly rate and contained a definition of “success” as the client paying less that £3,954.124 in damages.   The client was to pay the standard hourly rate plus 20% if the solicitors achieved “early success”.

THE CLAIMANT’S ARGUMENTS

The claimant argued that the CFA was unreasonable, it was not supported by consideration and the claimant received nothing of value.  It was argued, therefore, that the bills should be assessed as if the CFA had never been made (the claimant abandoning an earlier argument that an unfair or unreasonable CFA would allow it to escape payment for all work done under the CFA).

THE DECISION OF THE COSTS JUDGE

In short the judge rejected the claimant’s contentions.

THE JUDGMENT ON THIS ISSUE

88. Before I explain my conclusion on whether the CFA was a CBA, I will, on the premise that it was, address the questions of fairness and reasonableness.

1. 1. One of the difficulties in analysing the Claimant’s case in that respect is that issues of consideration, fairness and reasonableness are elided, so that for example a lack of consideration is cited as a ground for setting aside and (contrary to the principles of Re Stuart ex p Cathcart) the same arguments are advanced in support of the proposition that the “mode of obtaining” the CFA was unfair and its terms unreasonable. In coming to my conclusions, I have tried to untangle the threads as best I can.

Consideration, and whether the Claimant Gained any Benefit from the CFA

1. 1. If the CFA were indeed void for want of consideration then, strictly speaking, whether it might properly be characterised as a CBA would be academic, as would considerations of fairness and reasonableness. It would not bind either party. The Claimant’s case as presented, however, ties the issue into the question of whether (applying Re Stuart ex p Cathcart) the “mode of obtaining” it was fair. Either way I have to determine whether it did indeed, as the Claimant says, offer nothing to the Claimant and was wholly to the Defendant’s advantage. It seems to me quite clear that such was not the case.

1. 1. I start with Mr Lambersy’s evidence on this issue. He says that he took Ms Prince’s reference to discounted rates to be a mere “sales pitch”. He seeks to justify that assumption, in a rather circular fashion, by the fact that the Defendant never charged the Claimant at its full rates. This is hard to reconcile with the fact that on signing the engagement letter, Mr Lambersy and his Co-President, on behalf of the Claimant, had agreed to pay the full rates.

1. 1. Mr Lambersy was at the time a Co-President of the Claimant, which is described in its own documentation as providing services for debt securities from some of the largest and most reputable companies and financial institutions in the world, its senior management being experienced in the field of financial technology and mechanics.

1. 1. Mr Lambersy himself, as Ms Prince describes him and as the evidence of his dealings with the Defendant (both in relation to retainer arrangements and the issues in the litigation) bears out, is an intelligent and sophisticated man, entirely capable of understanding complex legal documents. He is fluent in several languages. He is a senior executive in a highly successful US corporate entity operating in a lucrative specialist market, which has generated annual profits, between 2016 and 2018, of about 2 million US Dollars and which had instructed lawyers in several jurisdictions in connection with the matters that led to this litigation. He and his Co-President made a measured choice about the UK solicitors it wished to instruct for this litigation, making arrangements with another firm before reverting to the Defendant.

1. 1. One has to ask, then, why Mr Lambersy would commit the Claimant, in writing, to pay hourly rates which he regarded as in some way not real, and why he evidently took seriously Ms Prince’s reminder on 2 August 2019 that she was coming under pressure to raise rates that had only been agreed for an initial period: an obvious reference to the discount.

1. 1. I would add that the Defendant’s standard hourly rates appear unsurprising for a City of London firm instructed (entirely appropriately) to undertake litigation of this kind and on this scale. One may for example compare Ms Prince’s standard hourly rate, under the CFA, of £755 per hour with the £750 allowed by Costs Judge Rowley between parties for a Grade A solicitor in Shulman v Kolomoisky [2020] EWHC B29 (Costs). Hourly rates payable on a contractual basis as between solicitor and client for cases of this kind may be significantly higher (like the Grade A rate of £940 claimed in Shulman v Kolomoisky).

1. 1. In the course of choosing a UK solicitor to represent the Claimant in this litigation, one might expect Mr Lambersy to have gained some broad understanding of City of London commercial litigation charging rates.

1. 1. Ms Prince’s evidence confirms that the Claimant’s standard rates were just that, and in this respect as in others I find her evidence to be more persuasive than that of Mr Lambersy.

1. 1. I find it impossible to avoid the conclusion that contrary to what he now says, Mr Lambersy knew that the rates described by the Defendant as standard rates were true standard rates, and that the Claimant was receiving a substantial discount on them. He committed the Claimant to the CFA because he wanted the Claimant to continue receiving that substantial discount.

1. 1. This takes me to the proposition that the Defendant was not actually entitled, in the event that the Claimant declined to enter into a CFA, to end the discount on its rates, advanced by the Claimant in support of its case to the effect that the CFA was unfair, unreasonable and void for lack of consideration.

1. 1. The Claimant’s case in this respect rests upon two premises that seem to me to be insupportable. The first is that, because the Defendant had not, as it was entitled to under the terms of the engagement letter of 8 August 2018, charged its full (as opposed to discounted) pre-CFA hourly rates from 8 November 2018, it was no longer entitled to do so by 12 August 2019, when the CFA was signed. (Hence Mr Marven’s careful reference, in submissions, to “pre-CFA rates” rather than “discounted rates”.)

1. 1. Mr Marven offered no authority for that proposition, and I do not think that it can be right. Whether the Defendant, after three months had passed from the date of the engagement letter, continued to discount its hourly rates as an ex gratia gesture, from an unwillingness to press the issue or from mere oversight, seems to me to be immaterial. The Defendant could have started charging its standard hourly rates at any time after three months had elapsed.

1. 1. As Mr Carpenter says, the Defendant’s right to end the discount on hourly rates would have lapsed, if not exercised immediately after three months had passed, only if there were a clear contractual provision to that effect in the engagement letter. Unsurprisingly, there is none.

1. 1. Similarly, I am unaware of any authority for the proposition that, not having raised its hourly rates from 1 May 2019 as provided for in the engagement letter, the Defendant was then precluded from raising them from, say, 1 August or 1 September 2019. If the Defendant (as it did) reserved in its retainer terms the right to increase its rates from 1 May 2019, then it would equally have had the right to raise them with effect from a later date.

1. 1. As to what would have happened if the Claimant had rejected the CFA, the evidence of Ms Prince is unequivocal and unsurprising. She says that in that event the Defendant would, under the terms of the existing retainer, have reverted to the standard 2019 rates, possibly with a small discount, but not as much as 30%. Consistently with what the Claimant had been told from the outset the Claimant would, if it wished to continue to instruct the Defendant, have been obliged under the terms of the retainer of 8 August 2018, to pay the hourly rates incorporated in the CFA, but without the 30% discount.

1. 1. Hence Ms Prince’s clear warning to Mr Lambersy, after waiting almost a month for him to respond to the draft CFA, that she was coming under pressure to raise hourly rates which the Defendant had only agreed to discount for an initial period.

1. 1. For that reason Mr Marven’s reference to Richard Buxton Solicitors v Mills-Owens seems to me to be beside the point. The Defendant was not proposing to end the retainer put in place by the engagement letter of 8 August 2018: it was a matter for the Claimant whether it chose to do so, whether it found the terms of the CFA more attractive, or for that matter if it chose to go elsewhere. If the Claimant did not choose to enter into the CFA, then the Defendant would have continued under the existing retainer.

1. 1. There was no obligation on the Defendant, as Mr Marven suggests, to offer a wider range of retainer options, or to advise upon retainer options that were not on offer. That is not part of the Claimant’s case, there is no authority for that and professional standards do not require it. In a situation where both parties had understood from the outset that the choices acceptable to the Defendant were a private retainer or a CFA, it would have been entirely redundant. Notably Mr Marven offered no specific alternatives other than an indefinitely extended discount arrangement to which, for the reasons I have given, the Claimant had no right.

1. 1. It is illustrative of difficulties raised by this argument that I find myself uncertain whether it is suggested that it would have been incumbent on the Defendant to explain the meaning of clause 20.4 (providing that the CBA is not a CBA). As I have said, that is not part of the Claimant’s case: Mr Lambersy does not make that assertion.

1. 1. In any case, I do not think it can have been. Clause 20.4 is a very standard provision (I believe that it may have been introduced to the Law Society’s model CFA in response to Hollins and Russell). The Defendant evidently did not intend to offer a CBA to the Claimant, and an explanation of the Claimant’s rights to challenge the Defendant’s costs on a non-CBA basis had already been given.

1. 1. In any case, if as the Claimant argues clause 20.4 is ineffective, any failure to advise upon it would be immaterial, and if it is effective, then the section 61 criteria do not apply.

1. 1. In conclusion, as Ms Prince says, the benefit to the Claimant upon entering into the CFA was quite plainly that it continued to receive a 30% discount on the Defendant’s standard hourly rates. The hourly rates charged under the CFA offer no basis for any conclusion to the effect that it was unfair (or for that matter unreasonable).

The Definition of Success

1. 1. The Claimant complains that the CFA’s definition of “success” was effectively any payment made by the Claimant which was not more than £3,950,000. This amount was, says the Claimant, more than three times its net worth. By that definition of ‘success’, if the Claimant was placed into liquidation because of a judgment debt to SKAT, the Defendant would be entitled to an uplift on its fees.

1. 1. This argument is presented as pertinent to both the fairness and reasonableness of the CFA, whereas as I have observed, it must be one or the other. As Mr Carpenter said, given that it focuses on a provision of the CFA, it must go to reasonableness. In my view, it fails to establish that the CFA is unreasonable, and insofar as it might have been permissible to extend it to fairness it would also fail.

1. 1. That is first because, as Mr Carpenter submits, one does not look at one provision in isolation. One must look at the agreement as a whole. The success fee is part of a larger document which has advantages and disadvantages for both parties. What is now described by Mr Lambersy, in evidence, as a “ludicrous” definition of success was part of an overall arrangement the terms of which he observed, on 7 August 2019, “make sense and are in line with what we discussed”.

1. 1. This change of view, from a person who would have been a better position to understand the Claimant’s financial affairs than Ms Prince, goes unexplained. The CFA was clearly up for negotiation and Mr Lambersy, for example, sought a cap on the fees, but he did not query the definition of success.

1. 1. It seems to me that there could only be two explanations for this: either Mr Lambersy took the view, in August 2019, that the Claimant could raise £3,950,000 if it needed to, or he was prepared to commit the Claimant to pay to the Defendant, in at least some circumstances, fees which (he now says) it could not possibly afford.

1. 1. Neither of these propositions offers any basis for concluding either that the conduct of the Defendant in proposing and agreeing the CFA was unfair, or that the success provisions of the CFA were themselves unreasonable.

1. 1. In any case, Mr Lambersy’s evidence on what the Claimant can and cannot afford is patently incomplete. He says that in the latest accounts filed in the United Kingdom by the Claimant, total turnover came to £995,688 and it had no more than 8 employees.

1. 1. This clearly refers to the Claimant’s UK branch alone. According to extracts from the Claimant’s website the Claimant employs (by Ms Prince’s count) 25 people, 8 of them (by my count) in London. Similarly, the reference to a turnover of £995,688 appears to be a reference to a set of unaudited accounts for the year ending 31 December 2018 (filed in September 2020) in which the Claimant’s “UK branch” is described as having a turnover of US $1,329,014. The turnover of the Claimant itself is shown as more than five times that amount.

1. 1. Even if the UK branch of the Claimant were a subsidiary of a larger parent corporation in the US, which it clearly is not, the figures offered by Mr Lambersy would not present a complete and reliable picture of the Claimant’s financial position.

1. 1. Ms Prince confirms that, as the CFA explained, the figure of £3,954,124 within the definition of a “Successful Outcome” was the sterling equivalent of €4,408,517 at the date of the CFA. That in turn was based upon SKAT’s claim, in the alternative to £430 million, for restitution of fees received by the Claimant as a result of the allegedly fraudulent transactions. The figure, derived (as Ms Prince recalls) from a spreadsheet which Mr Lambersy sent to the Defendant in May 2019, is slightly lower than the figure given by the Claimant in the course of the SKAT proceedings, because it included only fees from the main alleged fraud defendant, as opposed to all sources.

1. 1. I can see the point of that. On the evidence, both parties understood from the outset that the Claimant wished as soon as possible to extract itself from potentially ruinous litigation in which it was being sued for £430 million. It is accepted by both parties that the Claimant could not afford to pay that. The proposal that the Claimant would pay a 20% success fee for an early escape from the litigation at less than 1% of that sum, and with an attendant saving on legal costs over the coming years, does not seem to me to be remotely unreasonable.

1. 1. Nor can I see no good reason why Ms Prince might have supposed that a corporation that had been generating annual profits of 2 million US dollars could not raise the sum of £3,954,124. I accept her evidence to the effect that the Claimant presented itself as a highly successful business at the top of its field, which nonetheless could not afford to pay £430 million. At the very least, she might reasonably have left it to her client to say so if payment of £3,954,124 (and, by necessary implication, any success fee) would not be possible.

1. 1. In summary, I can find no basis for finding the success fee to be unreasonable (or, if it were open to the Claimant to put its case on those terms, for finding it to be unfair) by reference to the success fee provisions.

Independent Advice

1. 1. The Claimant’s complaint that the Defendant did not do enough to ensure that the Claimant had the opportunity to obtain independent legal advice seems to me to go to the question of whether the CFA was fair, meaning whether (Re Stuart ex p Cathcart) the “mode of obtaining” it was fair.

1. 1. To be precise, the Claimant’s case as put in the Amended Particulars of Claim is that the Defendant obtained through the CFA a financial advantage over the Claimant, as a result of which the Defendant was under an obligation to advise the Claimant to seek independent legal advice, given the conflict of interest that arose or was likely to arise: and that Ms Prince’s two suggestions on 5 July 2019 fell short of a clear direction to seek independent legal advice.

1. 1. Having heard submissions on fiduciary duty, before I address the facts of the case I should explain certain conclusions that I have reached on the applicable principles. The first is that I bear in mind Mr Carpenter’s warning that the tests to be applied are fairness and reasonableness, and we have the guidance of Re Stuart ex p Cathcart on how those tests are to be applied. One must avoid imposing a gloss on that guidance.

1. 1. I have concluded that questions of informed consent or breach of fiduciary duty may well be relevant on reaching a conclusion as to whether a CBA is unfair. One must however not lose sight of the fact that the issues are fairness and reasonableness, or of the Re Stuart ex p Cathcart guidance on how those issues are to be determined. Informed consent and breach of fiduciary duty are distinct concepts. So, for example, in considering breach of fiduciary duty, the fairness or otherwise of a given transaction is generally not a relevant consideration (Snell, at 7-018). It follows that any breach of fiduciary duty cannot be determinative of the issue of fairness.

1. 1. The second is this. It is common ground, in this case, that by August 2019, the Defendant as solicitor owed fiduciary duties to the Claimant as its client. I would, accordingly, accept Mr Marven’s argument to the effect that, insofar as negotiating and entering into the CFA at that point represented a potential conflict of interest between the Claimant and the Defendant, then any breach of fiduciary duty on the Defendant’s part could be avoided by ensuring the Claimant’s fully informed consent to the new retainer arrangements.

1. 1. What I do not accept was that that, of necessity, required that the Defendant advise the Claimant to take independent advice, much less that the Defendant insist upon the Claimant doing so. That is the case notwithstanding that a fiduciary relationship did exist. In explaining that conclusion I will focus on those cases where a solicitor/client relationship already existed, although the fact that there was no suggestion of any need for independent advice in MacDougall v Boote Edgar Esterkin, and a positive finding in Bolt Burdon Solicitors v Tariq that there was no such requirement, does seem to me to be relevant.

1. 1. In Surrey v Barnet and Chase Farm Hospitals NHS Trust the Court of Appeal had to determine whether additional liabilities incurred by three claimants who had been persuaded by their solicitors to substitute a CFA for legal aid funding, had been reasonably incurred. The Court concluded that they had not, because the advice given to the claimants had exaggerated (and in two cases misrepresented) the disadvantages of remaining with legal aid funding, and had omitted entirely any mention of the disadvantages of entering into a CFA.

1. 1. In addition, the solicitors benefited from the CFA in earning a success fee that would not have been earned had legal aid funding continued. Lewison LJ accepted (as had the District Judge at first instance) that where one of two or more options available to a client is more financially beneficial to the solicitor, there is a particular need for transparency. It was in that context that Lewison LJ referred (at paragraph 61) to the

“…fundamental principle of equity that where a person stands in a fiduciary relationship to another, the fiduciary is not permitted to retain a profit derived from that fiduciary relationship without the fully informed consent of the other…”

1. 1. What Lewison LJ did not say, and what (to the best of my knowledge) has never been suggested in any of a clutch of similar cases concerning changes of funding from legal aid to CFAs, is that independent legal advice is a prerequisite to informed consent. The obligation upon the solicitor is rather to ensure that the client is fully and properly advised. Referring the client to an independent advisor may be one way of achieving that, but it does not follow that an absence of independent advice equates to an absence of informed consent.

1. 1. Ms Prince did point out to Mr Lambersy that the Claimant could take independent advice. Mr Lambersy says this about her suggestion:

“Given our close working relation with SH, and the presumption of trust, SH’s words could have been read to convey a subtle sub-text — a subliminal message which would have reduced the likelihood that we would seek outside independent legal review of the CFA…

‘It is of course up to you if you want’ (I took this to mean: [If you (Acupay) don’t trust me (SH))]

‘If you want to seek independent legal advice on the terms of the CFA’ (I took this to mean: [please go to another lawyer and seek their advice, if you wish, but if you do, you will be messing with our relationship and questioning our ability to act in your best interests])…”

1. 1. As with discounted rates, Mr Lambersy takes upon himself here to impose his own meaning on Ms Prince’s words, turning her suggestion that the Claimant had the option to take independent advice, into some form of pressure not to do so. That is notwithstanding that Ms Prince had stated on 5 July 2019 that the Claimant could not advise the Defendant upon the terms of any agreement between them. The use of the words “could have been read” is also quite telling. Mr Lambersy is, after the event, putting a spin on Ms Prince’s words. In my view they do not stand to be interpreted as Mr Lambersy says, and I cannot accept that he did interpret them in that way.

1. 1. Nor does Mr Lambersy offer any evidence as to what the Claimant would have done if it were not, as he alleges, discouraged from taking independent legal advice. In fact he does not seem to say in plain terms that the Claimant did not seek independent advice: he says rather that had it been clearly explained that the Defendant could not advise on a contract to which it was a party (which, in fact, Ms Prince did) and the purported CFA reviewed independently, no lawyer would have advised to enter into such a one-sided agreement.

1. 1. I have already stated my reasons for concluding that the agreement was not one-sided. I do not know, for example, whether Mr Lambersy spoke to Mr Doobay, as Ms Prince recommended, about any implications the CFA might have had for the criminal proceedings, or whether that led to any broader discussion about the terms of the CFA, or what Mr Doobay had to say about independent advice. Given the way in which Lambersy has presented his advice generally, I not sure that he has presented a complete picture.

1. 1. In any event my conclusion, on the available evidence, is that the Defendant reminded the Claimant that it could take independent advice, but that the Claimant did not do so because Mr Lambersy, being aware of that option, chose not to.

Full and Fair Exposition

1. 1. This takes me first, to the extent to which the CFA benefited the Defendant and second, the extent to which the information provided by the Defendant represented a full and fair exposition of the relevant factors, as far as the CFA was concerned.

1. 1. Self-evidently there were advantages and disadvantages to each of the parties in entering into the CFA. As I have observed, and as one might expect, it represented a balance of the parties’ interests. The Claimant continued to pay on the basis of heavily discounted hourly rates, when otherwise that discount would have ended. The Defendant continued to accept a 30% discount on its hourly rates in return for the prospect of receiving its standard rates, and a 20% success fee on its standard rates in the event of the ideal outcome of early success. It was not a one-sided transaction, and it was manifestly not to the exclusive advantage of the Defendant.

1. 1. With regard to the information provided to the Claimant by the Defendant, the general structure of a proposed CFA, consistent with the CFA eventually entered into, was put to the Claimant on 28 July 2018. A more detailed, updated summary was provided by Ms Prince on 5 July 2019, together with a draft of the proposed agreement and her suggestion that the Claimant might wish to take independent advice.

1. 1. Mr Lambersy, by reference to the rises on hourly rates and Ms Prince’s email of 5 July 2019 (with its reference to the Claimant’s continuing to pay the same hourly rates) says that the Claimant was misled and confused by the change in rates at or around the same time that the CFA was entered into.

1. 1. As I have observed, Ms Prince’s email could only be misleading if read in isolation, and it was not intended to be read in isolation. All that Mr Lambersy had to do, in order to understand the CFA’s provisions for hourly charges, was to read it in full, as Ms Prince not only asked him to do but emphasised the importance of doing. He had over a month to do that then between receiving the draft CFA and signing the finalised version, and it is clear that Ms Prince was available and ready at all times to discuss its terms and answer any queries that Mr Lambersy might have.

1. 1. It would follow that if Mr Lambersy was confused and unclear about the terms of the CFA, it was not through any fault of Ms Prince. In fact I am unable to accept that Mr Lambersy was in any way actually confused or misled. Again, the wording of his statement is telling in this respect because he does not say so: he says rather that “Acupay” was confused and misled, which reads more as a statement of case than as a statement of fact.

1. 1. In any event I do not find it credible that Mr Lambersy could himself have been confused or misled first because he appears to have done what Ms Prince asked him to do, by reading the CFA in detail and raising any queries that he had; and second, because, the day after the CFA was signed, the increased hourly rates were specifically brought to his attention (for the second time) and he had nothing to say about them.

1. 1. This can be contrasted with the complaints now made in Mr Lambersy’s evidence about the hourly rates in the CFA. He complains that the rates actually paid by the Claimant went up rather than down, notwithstanding that it was never proposed that they would go down.

1. 1. Mr Lambersy also complains that the rates chargeable for Ms Prince and one assistant, Ms Usorova, went up by between 11%, and 12%, but that is consistent with the terms of the engagement letter of 8 August 2018, which provided for individual fee earner rates to increase with seniority. I have already pointed out that Ms Prince’s CFA rate can be compared with that allowed by Costs Judge Rowley between the parties in Shulman v Kolomoisky. Ms Usorova was not, as alleged by the Claimant, one of the “two highest fee earners” but a Grade C fee earner, whose CFA hourly rate of £388.50 can, again, be compared with the £400 per hour allowed by Costs Judge Rowley for grade C fee earners.

1. 1. In fact the overall range of charges (depending upon seniority) is broadly comparable with those in the engagement letter of 8 August 2018, and, as with the engagement letter itself, seem to me to be appropriate to the nature of the work. Notably the highest hourly rate chargeable in the engagement letter was £800, whereas the highest hourly rate specified in at the CFA of 12 August 2019 was £755, and Ms Lewis’s hourly rate increased by only 3.2%. The picture presented by Mr Lambersy is a distorted one.

1. 1. Again, these hourly rates were a part of an overall contractual arrangement described at the time by Mr Lambersy as making sense and in line with what the parties are discussed. Against that, the belated outrage now expressed by the Claimant at the rise in fees is, to my mind, artificial: I bear in mind that on the evidence, the Claimant stopped paying the Defendant’s bills not because it was dissatisfied with either the Defendant’s work or its charges, but because, following the impact of the pandemic on its business in early 2020, it was having difficulty in doing so.

1. 1. It seems to me that if one is realistic, the Defendant could not have done more to ensure that the Claimant was properly informed as to the CFA’s terms, and one loosely worded email does not change that. In fact, the Defendant acted at all times consistently with the position it had put to the Claimant both before the signing of the retainer letter and when the retainer letter was signed. The only way in which it acted inconsistently with its retainer was in charging the Claimant less than it could have done. It is, in my view, remarkable that the Claimant has relied upon that in advancing a case to the effect that the Defendant acted unfairly and unreasonably.

1. 1. This takes me back to the question of independent advice. Ms Prince did her reasonable best to ensure that the Claimant was given a full and fair exposition of the CFA’s terms. She also pointed out (properly, in my view) that the Claimant had the option of taking independent advice and (rightly, in my view) that that was a matter for the Claimant. I do not believe that it was incumbent on the Defendant to do more.

Costs Estimates

1. 1. I come to Mr Lambersy’s evidence to the effect that at the time of signing the CFA, the Claimant had been inadequately advised by the Defendant in relation to the prospective cost of the litigation. I have said that I do not think that it could be right to make any finding against the Defendant based on the Claimant’s one-sided evidence on this issue, but also that in any event I do not believe that the Claimant’s evidence actually makes out any case against the Defendant. These are my reasons for saying that.

1. 1. Mr Lambersy’s evidence focuses on a split trial proposal made by SKAT. On 10 June 2019, SKAT’s solicitors had proposed, as an efficient and cost-effective way of managing the proceedings, a split trial arrangement. Their proposal was to stay the proceedings against the non-fraud defendants until the final disposal of the proceedings against the alleged fraud defendants. They estimated that a trial against the alleged fraud defendants alone would take 25 weeks, and against all the defendants twice that. They suggested that this arrangement could minimise duplication of costs, bring forward the listing of the trial against the alleged fraud defendants and save court time.

1. 1. This proposal was discussed with Counsel, and the conclusion was that this arrangement should not be agreed. The reasoning behind that conclusion was set out in a letter to SKAT’s solicitors dated 19 July 2019. To summarise a fairly detailed response, the key point was that the proposed arrangement was unworkable and unfair to the non-fraud defendants, who would (given that the case against them rested upon the transactions they had facilitated being fraudulent) end up having to participate in two major trials rather than one. This was a view shared by solicitors for other non-fraud defendants, who expressed the view that the proposed arrangement was not only unworkable but would be likely to expose their clients to more costs, rather than less, as well as to unacceptable delay.

1. 1. The Claimant has instructed a costs lawyer to prepare costs budgets for a full 50-week trial, as opposed to a three-week trial for the non-fraud defendants, and complains that the Defendant’s approach would cost them an additional £17 million, along with the advantages attendant on a deferring costs for several years. Mr Lambersy says that the Claimant could not afford a 50-week trial. Had he been properly advised at the time with this sort of detailed cost information, he says, he would have accepted SKAT’s proposal.

1. 1. The point being made in June 2018 by the Defendant, along with solicitors for other non-fraud parties, was however that the proposal offered by SKAT was not actually going to save the non-fraud defendants any money, and was likely in fact cost them more. That did not require, as Mr Lambersy suggests, a detailed breakdown of comparative trial costs. A simplistic comparison between the costs of a 50-week trial and a three-week trial does not begin to address the real issues.

1. 1. As for Mr Lambersy’s complaint that the Defendant “simply went with the flow of argument”, that does not seem to me to have been the case at all. The apparent consensus of opinion between non-fraud defendants, if anything, tends to indicate that the Defendant’s conclusions were correct, or at the very least well within the bounds of reasonable opinion. In November 2019, following months of interparty discussions, the Defendant did recommend, in conjunction with counsel and other solicitors for non-fraud defendants represented by nine firms of solicitors, an alternative split trial arrangement (liability and then quantum) which was thought more likely to save costs for the non-fraud defendants.

1. 1. Mr Lambersy says nothing about how SKAT’s proposed arrangement could have been agreed between SKAT and the Claimant while the wider body of non-fraud dependents remained, apparently for sound reasons, resolutely opposed to it. The trial structure was never going to be based around what one of 95 defendants could afford to pay its legal representatives.

1. 1. I appreciate that professional standards require that a solicitor managing contentious business provide a client with the best possible information on present and future costs on a continuing basis. As far as I can see, the Defendant, which in January 2019 produced a quite comprehensive estimate of costs for the coming year (and, to some extent, beyond) did as much as one could reasonably expect at that stage to forecast the forthcoming costs of litigation that, by its nature, was replete with uncertainties.

1. 1. Mr Marven argues that this estimate should have been updated to take into account the effect of the CFA. Mr Lambersy, however, does not. He says only that the Claimant was not given sufficient information to make an informed choice about SKAT’s split trail proposal (which, for the reasons I have given, I do not accept) and that a lack of adequate costs information left the Claimant venturing into the unknown, with no costs-based strategy or costs-based leadership from the Defendant as to how the Claimant might best extract itself from the litigation.

1. 1. What Mr Lambersy does not say (apart from how that might have been achieved) is that the Claimant did not have sufficient costs information to make an informed choice about entering into the CFA. Given the uncertainties prevailing in August 2019, when there was no clear consensus about how the litigation should be managed, it is difficult to see how a revised costs estimate (which would, like the January estimate, necessarily have been subject to very many assumptions and provisos) could have helped in that respect, and Mr Lambersy offers no evidence to support the proposition that it would have done.

1. 1. Nothing in the Claimant’s evidence about estimates, even on the necessarily one-sided basis that I have had to consider it, seems to me to offer any basis for a conclusion that the CFA was either unfair or unreasonable.

Unfairness and Unreasonableness: Summary

1. 1. Mr Marven has reminded me that in Re Stuart ex p Cathcart Lord Esher MR put the onus on a solicitor to satisfy the court that a CBA is fair and reasonable. I am satisfied that the CFA, if it was a CBA, was both. Lord Esher said that where a solicitor makes an agreement with a client who fully understands and appreciates that agreement, that satisfies the requirement as to fairness. Such was the case here. I do not accept that the pre-existing solicitor-client relationship imposed any obligation on the Defendant that was not properly met. As for reasonableness, it seems to me that the CFA, judged properly as a whole, is an entirely reasonable agreement.

1. 1. The Claimant’s case to the contrary is based on evidence that I regard as too incomplete, unreliable and one-sided to be reliable, and upon arguments that do not seem to me to bear real examination.

Whether the CFA is a CBA

1. 1. I have already expressed my conclusions to the effect that, if it were a CBA, the CFA was neither unfair nor unreasonable. It would follow that if it were a CBA, the Defendant could hold the Claimant to its terms by charging its standard hourly rates. However the Defendant’s case is that it is not a CBA and the Defendant does not intend to charge more than the discounted rates. In consequence, my conclusion as to whether the CFA is in fact a CBA may be somewhat academic for present purposes. Nonetheless, it is one of the issues that I am required, under the terms of the consent order, to address.

1. 1. I start with the observation that the prescribed effect of a CBA is to limit a client’s statutory right to challenge a solicitor’s costs. Even where the CBA provides for payment by the hour, the client can challenge only the hours worked; an hourly rate that might otherwise be judged irrecoverable will be beyond challenge if the CBA is fair and reasonable.

1. 1. This could have significant disadvantages for a client. For example, a perfectly fair and reasonable Non-Contentious Business Agreement, in Bolt Burdon Solicitors v Tariq, allowed a solicitor to be paid £821,045.06 for work to the value of £50,000. Mr Tariq, by virtue of entering into the agreement, had sacrificed the statutory right to a detailed assessment which would probably have limited the solicitor’s remuneration to the lower amount.

1. 1. I do not suggest that a CBA will always be to a solicitor’s advantage. At the very least, however, one would hope that the parties to a contract of retainer would be free, as Mr Carpenter submits, to choose which of the two mutually exclusive statutory regimes offered by section 59(1) and section 70 of the 1974 Act will apply.

1. 1. The logical conclusion to be drawn from the Claimant’s submissions is that any contract of retainer that is sufficiently certain and meets the very wide criteria provided for by section 59(1) will be a CBA, even if the agreement purports to choose the section 70 regime, and to preserve the client’s full rights to challenge bills, by saying that it is not. The client’s rights to challenge the solicitor’s costs will be at best limited and at worst non-existent unless the agreement is unfair or unreasonable. Whether the parties want that, or agree it, is irrelevant. That is not, on its face, an attractive proposition.

1. 1. Mr Marven has attempted to meet that concern by suggesting that where an agreement says that it is not a CBA, a client could prevent a solicitor from executing a later U-turn and insisting that, by virtue of meeting the section 59 criteria, it is. He has also (in the course of other submissions) offered an example of how the CBA regime might benefit a client by arguing that if the CFA in this case were to be set aside, then the consequence would be that all costs rendered by the Defendant pursuant to the CFA would fall to be assessed, even if the time limits prescribed by section 70 have expired.

1. 1. I tend to agree that a solicitor who enters into an agreement with a client that says it is not a CBA would be in some difficulty in subsequently attempting to gain an advantage over the client by saying that it is. Surely, however, the same must apply in reverse. Either the wording of the agreement binds both parties, or it binds neither of them. If anything, this argument militates against the Claimant’s attempt to gain an advantage in this particular case by characterising the CFA as a CBA, when it has agreed that it is not.

1. 1. It would seem to follow that, on the Claimant’s case, in very many contentious retainers a solicitor and client could ensure that they choose the section 70 regime over the CBA regime only by avoiding a written retainer or making its terms sufficiently uncertain.

1. 1. Again, that does not seem to me to be an attractive conclusion. As a matter of policy, to ensure that professional standards are met and in the interests of clients generally, it is plainly desirable to ensure first that retainers are in writing, and second that the terms of those retainers are as clear and certain as possible.

1. 1. I appreciate, as Mr Marven says, that if that is the effect of section 59(1) then that is its effect, whether the consequences are attractive or not. I do not think, however, that it is.

1. 1. I agree (in fact it is not in issue) that the terms of the CFA are consistent with its being a CBA, with the notable exception of an express provision to the effect that it is not. I have, accordingly, given much thought to whether I am bound, following Wilson v The Specter Partnership, to reach the conclusion that it is a CBA, because the fact that it incorporates a provision to the effect that it is not a CBA is not determinative, or even relevant.

1. 1. I have concluded that I am not so bound. Mann J’s finding appears to me to have been that the mere fact that an agreement does not say that it is a CBA does not prevent it from being a CBA. He did not address the question of whether it is a CBA even if it says in express terms that it is not. (Nor, for that matter, did the Court of Appeal in Hollins v Russell). In Healys LLP v Partridge [2019] Costs LR 1515 Kelyn Bacon QC (as she then was) was clearly open to the conclusion that a specific provision to the effect that a CFA is not a CBA could be determinative, although she did not have to decide the point.

1. 1. It seems to me that the provisions of section 59(1) of the 1974 Act are permissive, rather than prescriptive. A solicitor is at liberty to make an agreement in writing with a client which will qualify as a CBA. Section 59(1) provides that it may take many forms; in fact just about any renumeration arrangement seems to be covered, subject to certain exceptions of policy provided for in section 59(2) and elsewhere.

1. 1. It does not seem to me necessarily to follow that any written agreement providing for remuneration within the wide range of options provided for by section 59(1) must be a CBA, even if the agreement says that it is not. Section 59(1) does not say that, and I see no basis for importing those words into it.

1. 1. It is not in dispute that a party cannot contract out of the provisions of the 1974 Act. However, as Mr Carpenter says, that is not the issue. The issue is whether the parties have agreed to be bound by one or other of two mutually exclusive costs regimes provided for by the 1974 Act. To decide that, one must look to the terms of the agreement. A provision to the effect that the agreement is not a CFA will not merely be a matter of form. It will go to the substance of the agreement.

1. 1. As for Street v Mountford, as I understand it the point addressed was that if an agreement for the occupation of property meets certain criteria then it must, in law, be a tenancy. Describing it as a licence will not change that. The same principle would apply if section 59(1) specified that every agreement that falls within the permitted arrangements for a CBA must be a CBA, but as I have observed the section does not say that.

1. 1. As Mr Carpenter says, the characteristics that may make a solicitor’s contract of retainer a CBA can also be characteristics of a non-CBA retainer. A clear statement of the party’s intentions may be the only sensible basis on which one can distinguish one from the other.

1. 1. For those reasons, my conclusion is that the CFA is not a CBA.

The Consequences of this Judgment

1. 1. The Claimant has applied under CPR Part 8 for the detailed assessment of five bills. That application remains before the court. As I understand it, the application is unopposed subject to the condition that there is some payment on account against outstanding costs. It would seem that the next step will be to determine that. To that end, the matter should now be listed for directions.

1. 1. I do wish to make some further observations, strictly subject to submissions. They are intended to assist the parties: other than as to the issues I have, by virtue of the consent order, been required to decide, I have drawn no final conclusions.

1. 1. The Claimant evidently prepared this case itself, without external advice, in the hope of avoiding any liability to pay anything at all under the CFA by having it set aside. That was always a misconception. If it had been set aside, the work undertaken under the CFA would have been assessed as if it had never been made.

1. 1. Whether that would have resulted in a desirable outcome, from the Claimant’s point of view, may be questionable. Even if, as Mr Marven submits, all bills rendered under the CFA would have been open to detailed assessment, whenever rendered and paid, it seems likely that on the assessment of its costs as if the CFA had never been made, the Defendant would have been entitled to fall back upon the original contract of retainer. Even if that were not the case, as I have observed the hourly rates actually agreed by the Defendant seem very much in line with what has been allowed on detailed assessment between parties in cases of this kind, and the Claimant has already received a substantial discount on those rates.

Summary of Conclusions

1. 1. If the Conditional Fee Agreement (“the CFA”) signed on 12 August 2019 was a Contentious Business Agreement (“CBA”), then it was neither unfair nor unreasonable and it would not have been appropriate to set it aside.

1. 1. I have concluded however that the CFA was not a CBA. That is because it says expressly that it is not. In my view the parties were free to choose whether the provisions of the CFA should be governed by the provisions of section 59(1) of the Solicitors Act 1974, or the separate statutory regime provided for by section 70. I regard both parties as bound by their agreement in that respect.

1. The next step in this case is for the Claimant’s application for detailed assessment of five of the Defendant’s bills to proceed under section 70 of the 1974 Act.