A CLIENT DOES NOT OWE A “DUTY OF GOOD FAITH” TO A SOLICITOR ACTING UNDER A CONDITIONAL FEE AGREEMENT

In Candey Ltd v Bosheh & Anor [2022] EWCA Civ 1103 Lord Justice Coulson rejected an argument that a client, who has entered into a conditional fee agreement with a solicitor, owed a duty of good faith to that solicitor.   A solicitor acting under a CFA who negotiated a “drop hands” deal, with no order for costs, was not thereafter entitled to recover costs from their client on the basis that the client had breached a duty of good faith.

“This was an ordinary solicitors’ retainer which happened to be on a CFA basis. There are thousands of those in operation at any one time in the UK. Nobody has ever suggested before that they are relational contracts, or that in every CFA, the client owed the solicitor a duty of good faith. As my Lord, Lord Justice Phillips, pointed out during argument, that is not how they are sold to the public.”

THE CASE

The claimant solicitors entered into a conditional fee agreement with one of the defendants in relation to ongoing litigation.   That litigation settled by way of a “drop hands” deal.

THE CLAIMANT’S ACTION

The claimant brought proceedings alleging fraudulent misrepresentation, deceit and breach of an implied obligation of good faith. It was said that the client defendant was in breach of an implied term of good faith in the retainer. The second defendant was said to have procured the breach and/or was liable for unlawful conspiracy.

The claimant’s action relied on much privileged and confidential material.

THE JUDGMENT AT FIRST INSTANCE

At first instance the judge found that:

1. The claimants could not rely on either the privileged or some of the confidential material they had sought to deploy.
2. The claim based on the alleged implied terms, including that of good faith, had no prospect of success.
3. The only claim which had a real prospect of success was the alleged breach of an express term of the retainer.

THE CLAIMANT’S UNSUCCESSFUL APPEAL: NO DUTY OF GOOD FAITH OWED BY A CLIENT

The court considered whether there was any sustainable argument that the defendant client owed a duty of good faith. It was held that there was no such argument available to the claimant.

1. 1. I consider this issue, first by reference to the usual test for implied terms, and then by asking whether this was a relational contract. Either way, my answer is the same: the judge was right to conclude that there was no implied duty of good faith in the Retainer.

1. 1. First, the term is not so obvious that it went without saying. It was not necessary for the Retainer to work. The Retainer and CFA worked quite coherently without such a term. There was no real argument to the contrary.

1. 1. Secondly, Candey have not put forward any cogent basis for the implication of such a term. There is no authority that supports the proposition that, when retaining a solicitor to act for him or for her, the client owed that solicitor a duty of good faith. The absence of authority is perhaps unsurprising: it is a startling concept. Many would say that, if a duty of good faith was applicable at all, it would arise the other way round, and be owed by the solicitor to the client.

1. 1. Thirdly, I reject the suggestion that, because this was a CFA, as opposed to a traditional retainer, a duty of good faith arose in consequence. A CFA is merely a vehicle by which a party obtains legal services for minimal initial financial outlay. It governs the solicitor’s remuneration; it does not change the services or duties that the solicitor owes the client, or vice versa. Beyond the question of remuneration, therefore, there is no relevant distinction between a CFA and an ordinary retainer; certainly not one which justifies the inclusion of a duty of good faith in the former and not the latter.

1. 1. Furthermore, the CFA was itself contrary to the implied duty. As Candey well knew, the allegations made by Sheikh Mohamed against the Boshehs involved fraud and dishonesty. The CFA assumed that it was quite possible that Sheikh Mohamed would win his claim – that he would prove that the Boshehs had acted fraudulently – because the CFA provided that, if that happened, Candey would recover nothing. Thus, the possible truth of the fraud allegations was inherent in the CFA itself. It would therefore be contrary to the CFA to suggest that the Boshehs somehow owed a duty of good faith to Candey, particularly when addressing the allegations of fraud made against them by Sheikh Mohamed.

1. 1. 1. Inevitably, the communications between the Boshehs and Candey were going to involve the detail of those allegations of fraud, with the Boshehs explaining why they were incorrect, and what the explanations were for the conduct alleged against them. Mr Candey was well aware of the risks that those allegations might be proved to be true, as evidenced by the exchanges that led up to the settlement with Sheikh Mohamed, summarised in Appendix 1. Mr Bosheh asked Mr Candey for “a proper advise (sic) about our chances of success”. Mr Candey replied “50/50: it depends on your performance in Court as witnesses”. So he knew that the odds on the allegations of fraud being proved against the Boshehs was 50/50. There can be no room for a good faith obligation in such circumstances; otherwise, rather than this being a conditional fee agreement, it would become a guaranteed fee agreement: Candey would ‘win’ (i.e. recover its costs) if their clients were telling the truth (because Sheikh Mohamed would lose and the CFA would allow Candey to recover); but they would also ‘win’ if their clients were found not to be telling the truth (because of the breach of the good faith obligation). That is why the implied term is at odds with the CFA itself.

1. 1. Fourthly, a run-through of the checklist at [725] of Bates v Post Office, using that merely as a sense check rather than a series of statutory requirements, leads to the conclusion that the Retainer was not a relational contract, so the good faith obligation would not be implied as a matter of law:

a) As to (1), I have already noted that the implied duty ran counter to the CFA itself. It might also be said that the good faith duty was contrary to the Costs Term. At the very least, the Cost Term provided a mechanism for dealing with difficulties arising out of Candey’s failure to recover their fees.

b) As to (2), there was no guarantee that the CFA would be a long-term contract. It might have been over in a few weeks, depending on Sheikh Mohamed’s progress of the litigation. It was completely different to a long-term joint venture between two separate commercial entities concerned with mining, say, or infrastructure, where the implication of such a term is more common.

c) As to (3), as Ms Ilet noted, there is no reason to think that the Boshehs would not have paid Candey if they had been so obliged. But under the express terms of the CFA, in the circumstances that occurred, they were not. So no question of integrity arose. Candey’s lack of remuneration was the effect of the CFA, which Candey themselves had drafted. Reasonableness of an alleged implied term is not the sole test for its implication.

d) As to (4), there was no commitment to collaboration. The judge rejected the implied term as to collaboration, and there is no appeal against that finding.

e) As to (5), the agreement between the parties was quite capable of being expressed in a written contract. Candey, as the solicitors, were required to carry out their services exercising reasonable skill and care, and they would be paid for those services in accordance with the terms of the CFA. That was the start and end of it.

f) As to (6), this was a fiduciary relationship, with Candey owing a fiduciary duty, or an obligation of “loyal subordination” of its own interests to those of the Boshehs: see Leggatt LJ in Al-Nehayan at [167]. Such a duty was different to the trust and confidence in a relational contract.

g) As to (7), there was no high degree of communication and no expectation of loyalty from the Boshehs. This was an ordinary retainer of a solicitor under a CFA.

h) As to (8), there was no degree of investment by the Boshehs. As for Candey, they chose to tie their prospects of recovering their investment in the case to what they described as the 50/50 chances of the Boshehs’ ultimate success.

i) As to (9), there was no exclusivity: Candey could terminate the Retainer at any time and, in the event, they did just that.

1. 1. In short, this was an ordinary solicitors’ retainer which happened to be on a CFA basis. There are thousands of those in operation at any one time in the UK. Nobody has ever suggested before that they are relational contracts, or that in every CFA, the client owed the solicitor a duty of good faith. As my Lord, Lord Justice Phillips, pointed out during argument, that is not how they are sold to the public.

5.5 Summary

1. For all these reasons, I agree with the judge that Candey has no real prospect of successfully establishing any implied term of a duty of good faith in the CFA. I would therefore dismiss Ground 3 of the appeal.