COST BITES 77: JUDGE REJECTS ARGUMENT THAT TERMS OF DISCOUNTED CONDITIONAL FEE AGREEMENTS MEANT THE SOLICITORS WERE NOT ENTITLED TO ANY COSTS OF ALL: COMPULSORY READING HERE – AND MUCH TO THINK ABOUT
The judgment of Judge Brown, sitting as a Master of the Kings Bench, in Ascension Asset Management Ltd & Anor v Sky Solicitors Ltd  EWHC 875 (KB) should be mandatory reading for any litigator who enters into a retainer with a client. The judge was considering issues relating to whether a solicitor was entitled to recover fees following acting for the claimant and acting under a Discounted Conditional Fee Agreement. In particular whether the fact that an action had been settled with “no order for costs” meant that the solicitors were not entitled to any costs at all. The judge further considered, and rejected, an argument that the solicitors costs were “capped” by an estimate of costs given in the course of a mediation.
LESSONS TO BE LEARNT
There are two aspects of this case that merit close attention.
- The drafting of the retainer document, which appears to have been adapted from a personal injury conditional fee agreement.
- The very practical point that, at any mediation or settlement meeting, it is prudent for a solicitor to have an exact figure of costs incurred to date.
The claimant company is involved in the business of purchasing and managing commercial property. It instructed the defendant solicitors to act for it in relation to a claim for rent arrears and forfeiture. That action was settled, after a mediation, the claimant was to receive damages and there was an order that each party pay their own costs.
The claimant then sought assessment of the bill of costs its own solicitors (the defendant in this action) rendered. That bill was for £201,480.44 with the fees element being £144,000 plus VAT.
THE DISCOUNTED CONDITIONAL FEE AGREEMENTS
The retainer between the parties was a Discounted Conditional Fee Agreement (a DCFA). These provided a cap of £10,000 on fees if the action was lost, plus disbursements. The terms of the agreement are set out in detail in the judgment.
THE VARIOUS ARGUMENTS IN RELATION TO THE DCFAS
Interpretation of the DCFAs
1.1.1 The different interpretations canvassed
- The Claimants’ case is that subclause 7.3 should properly be read as qualifying the obligation to pay basic charges in clause 3 and that such charges are payable only if there is an order or provision in the client’s favour in a settlement agreement expressly providing for the payment of the client’s basic charges (‘V1’).
- Alternatively, the Defendant is entitled to be paid its basic charges if they have in fact been recovered from the opponent whether or not they are described in any agreement with the opponent as costs (‘V2’): the Defendant solicitors say it is clear that the costs were in fact recovered albeit not expressly as costs in the deed but in the form of rent or other financial payment.
- Alternatively, subclause 7 (3) when read in sequence with subclause 7.1 and 7.2 only applies where a costs order has been obtained in the underlying claim but not when no costs order has been obtained: on this interpretation there is no requirement to show that costs have in fact been recovered in the proceedings in order to demonstrate an entitlement on the part of the solicitors to be paid their basic charges. Read in this way it may or may not be that costs should not exceed the amount that is recovered from the opponent in any money claim.
- There is, I suppose, a further possibility (‘V4’) that subclause 7.3 is to be read with subclause 7 (2) (where solicitors agrees costs without the client’s instructions). But neither party advanced this interpretation.
ISSUE NUMBER ONE: DID THE TERMS OF THE DCFAs MEAN THAT THE DEFENDANT HAD NO ENTITLEMENT TO COSTS?
The claimants’ initial argument was that since no costs were recovered in the rent and forfeiture action the defendant had no right to recover costs under the DCFAs. That argument was rejected by the judge.
THE JUDGMENT ON THIS ISSUE
- Turning first of all to V1, I agree with Mr. Benson that it is, at the very least, doubtful whether the literal meaning could be as the Claimants say: the DFCAs do not say in terms that the solicitors can only be paid basic charges if they are recovered from the opponent and are expressly described as basic charges, or indeed costs, in a settlement agreement or order. The words used in this subclause are “recovered” from the Opponents. Costs may well in fact be recovered in a literal sense in a lump sum payment even if that payment is not expressly labelled as costs.
- In any event I agree with Mr. Benson that if V1 were correct, subclause 7.3 would lack business efficacy and be unworkable for, to my mind, obvious reasons.
- It is plain that claims (particularly perhaps non- personal injury claims) can, and perhaps commonly, do settle without orders for costs. Parties, particularly perhaps those whose disputes arise in a commercial context, do not want the bother of having to pursue costs proceedings with the attendant further costs. Indeed, as here, there may be interim orders going either way, the working out of which would give rise to considerable further work and costs. Moreover, it may matter little whether the recovery of a sum of money is by way of damages, specific performance of an obligation to pay money or costs; and it is scarcely surprising that parties should ‘trade off’ costs and financial claims to agree one lump sum payment without having to specify whether any sum payable was by way of costs. But if V1 were correct then only if the sums recoverable in a compromise agreement were specifically described as costs would the client be liable to its solicitors for their fees; and if no mention is made of any costs recovery the client would avoid any liability for such fees (beyond those interim costs recovered) even if the claim clearly succeeded. And yet, curiously, on this interpretation it would seem that if the claims were lost there would be at least some liability for the losing fee.
- Further, it is also plain that a client may decide not to take the solicitors’ advice as to settlement (indeed in mediation the parties may talk directly to each other without any involvement of solicitors) At the risk of stating the obvious in general solicitors cannot dictate the terms of settlement: the solicitor merely advises and the client makes the decision. But it follows that if the Claimant were right the client could simply cut the solicitors out of its fee by agreeing an order for settlement of the claim which makes no express provision for costs. Indeed a client could in this process effectively give up an existing entitlement to costs under interim cost orders and agree to receive the sums due under such orders by way of damages (which is what Mr. Benson was saying would happen here if the Claimants were correct) or by way of set off against a costs order in favour of the opposing party.
- It is not clear to me that the solicitors could in practice do anything to protect their interests in being paid their basic charges if V1 were correct. I had understood that Mr Wilcock did not resist in his oral submissions at the conclusion of the hearing the suggestion that there were practical difficulties in doing so. In his later supplementary submissions (which I had directed should be limited to another different issue) Mr. Willock however developed the argument that if the solicitors considered any settlement agreement in the underlying claim that did not expressly provide for their costs were in prospect they could terminate the DFCA and claim their costs on the grounds inter alia that the client had not reasonably co-operated with the Defendant or had rejected the solicitor’s advice. Clause 10.2 of the DFCA, it is said is widely drawn and entitles the solicitors to terminate an agreement for “any reasonable ground” and, Clause 10.5 permits the solicitors to terminate when a client rejects the solicitor’s advice.
- I think however that Mr. Benson is right in his argument that the parties cannot have intended to structure their arrangements in this way. Mr. Wilcock accepted at the hearing that at the stage this litigation had reached, with an imminent trial, an attempt to terminate the agreement would be, at the very least, problematic having regard to the solicitor’s professional obligations; indeed I thought I had understood him to accept at the hearing that they could not realistically terminate the retainers. In any event the settlement of claims by mediation or otherwise shortly before trial is plainly not an unusual event. It followed however that if V1 were right solicitors would have to keep providing services (and possibly also incurring disbursements) if there were a prospect of a successful settlement but that no fees would be payable, an outcome which struck me as potentially serious for a solicitors’ firm (if not in some cases ruinous for a small firm) or if termination were possible terminate the retainers and quite possibly leave the client without representation at trial should settlement not in fact occur. That point illustrates just one of the problems. Indeed it would be difficult to see how any right to terminate might work in practice in a way that could adequately protect the solicitor’s interest. Solicitors are not always expected to participate in settlement negotiations and may not know be on notice, or adequate notice, of what a client might be negotiating. There might be a continuing risk throughout a claim that the client could negotiate a deal which cut the solicitors out of costs and thereby defeat the obvious expectation that the solicitors get paid their basic charges in the event of success. In any event in my judgment the termination provisions do not provide an appropriate or practical mechanism by which the solicitors can secure their basic charges.
- I should add, although it is not necessary for me to do so and indeed there was no real argument about this, it is, I think, at very least doubtful that the termination clauses themselves can be read as Mr Wilcock’s argues. Indeed I have quite a number of concerns about such a case. His interpretation does not appear to sit with the commercial realities: the ‘trading off’ of one element of a formal claim against each another (viz. costs/damages) is part and parcel of mediation (settlement) in a commercial context and the effective prohibition of such an approach (by a solicitor’s instruction/advice not to do so) does not fit with the expectations of mediation. Moreover if he were right it would be appear to oblige a client to act against its interests (and reject an otherwise reasonable settlement offer) in order to preserve the entitlement of the solicitors to be paid their basic charges. It is difficult to see that solicitors could terminate a CFA for failure to follow advice that might be unreasonable having regard to the client’s interest and yet still be able claim its fees. Indeed I would have thought that refusal to accept advice that a client must negotiate on specific terms such as these is not unreasonable. Added to this are the possible conflicts (in the legal  and non-legal sense) that such a reading of the provisions might promote. In these circumstances it is not at all clear to me this would be a workable interpretation of the termination clauses and indeed it strikes me as highly questionable whether clause 10.5, if read in the way contended for, would be enforceable  . However in view of the conclusions set above in the previous paragraph it is not necessary to reach any formal conclusions or for me to invite further submissions on these points.
- As the guidance I have cited above makes clear, when interpreting an agreement the quality of the drafting is relevant. The original template of the DCFAs appears to have been drafted for use in a personal injury case (see a requirement in clause 6 that a client consent to expert examination). It was Ms. Bambigboye, who, I understand, suggested some additional or revised terms of the DFCA and the original version of the agreements have been adapted to some extent in discussion with the parties. In these circumstances I am not satisfied that they are the standard terms of the solicitors or indeed solicitors in general. In any event I am satisfied no-one involved in the setting up of these retainers really or adequately addressed their minds to what would happen if the claim were to be resolved at mediation or otherwise settled. Both Mr. Ijieze and Mr Daniel were no doubt concentrating on the challenges of the litigation. Further, I am satisfied that had they turned their mind to it, they would have agreed, as a matter that was obvious, that if settlement had been reached in terms which meant the claims were a success but without any express order for costs in the Claimants’ favour nevertheless the Defendant would have to be paid its basic charges. Indeed it was the Claimant who contended in his email of 8 April 2021 that the agreement had not catered for the possibility of settlement in mediation.
- No imagination is required to reach this conclusion because it seems to me that it was on this basis that the parties proceeded in the mediation: no-one appears to have suggested that the Claimants did not have a liability under the proposed agreement notwithstanding subclause 7.3 and notwithstanding the provisional ‘drop hands’ agreement on costs. The absurdity of V1 is obvious. If it were right the client might, absent termination (on the Claimants’ case), simply cut the solicitors out from payment of basic changes; indeed V1 would lead to the odd conclusion that the solicitors are liable to be worse off in the event of success than if the claim were lost. It is plainly unworkable as an interpretation even if the solicitors could terminate the retainer when such an agreement which did not include a costs order were in prospect.
- Mr. Wilcock appeared to argue at one stage that I should not look at the commercial considerations because he suggested, at least as I understood his point, that this was not a contract made in commercial context. The DFCAs were, he appeared to contend, not commercial contracts and the commercial consequences are irrelevant. But quite apart from the fact that the contracts were made in a commercial context his point struck me as proceeding from a plain misunderstanding of the guidance which I have set out above: the need to consider commercial considerations, such as the practical workability, of a contract do not necessarily require both sides to be commercial entities or for a contract to be made in a strictly business context (as I think was his contention).
- Mr. Wilcock relies on what he says is the ordinary and natural meaning of the provisions. This is plainly an important consideration but as the guidance makes clear contractual interpretation is not a literalist exercise. Even if I were to accept that the clear meaning derived by such process was as the Claimants contend (which, for the reasons set out above I do not) and there would have to be a express costs order or provisions for liability for basic charges to be payable, that would not be an end to the matter: as it was put, if the parties expressly referred to Mary, they could have meant Jane.
- The Claimant’s case essentially is, as I understand it and as it was perhaps put somewhat starkly by Mr Wilcock, that the Defendant is “hamstrung” by its own agreement which it had negotiated and that the court should not, as I understand him to say, save the solicitors from the consequences of a bad agreement in circumstances where the problem is of their own making. I took the substance of Mr Wilcock’s point to be that the Defendant being solicitors, they should, in effect, be stuck with what they had negotiated; and that they should have known better than to enter into a contract such as this.
- In Candey v Bosheh  EWCA Civ 1103 the Court of Appeal held that there could not be implied into a conditional fee agreement an obligation of good faith on the part of a client. Mr Wilcock referred to the passage in the judgment of Coulson LJ where the learned judge was considering conflicts which might arise where terms are drafted in a CFA in such a way that the solicitor’s costs recovery is dependent on the client recovering something in the proceedings (). In this passage he said that “such conflicts cannot be resolved by an implied duty owed by the client to consider the solicitor’s natural interests rather than his own; it is for the solicitor to ensure that such conflicts do not arise in the first place.” Mr. Wilcock relied on this upon this for the proposition that it was for a solicitor to ensure that no conflict arises on the interpretation of the contract; and having failed to do so, the client’s version should be preferred. In my view this is not what the judge was saying: the important point he was making was that the difficulties created by conflicts of the sort he was referring to (ie where the solicitors costs are dependent on the client recovering something) cannot be resolved by an implied duty of good faith; the conflicts to which the learned judge was referring were not disputes as to the meaning of the retainer.
- Whilst solicitors can, of course, be expected to have an understanding of the significance of legal terms that a layman will not, and in general solicitors bear some burden in ensuring that a retainer is clear (see Gray v Buss Martin  PNLR 882), I had difficulty seeing how the approach advocated by Mr. Wilcock could be reconciled with the principles that I am required to apply. There are no special principles of interpretation applicable where solicitors are a contracting party. The relevant clauses were not offered by the solicitors as standard clauses; the agreement was negotiated. Indeed whether or not the contra proferentum rule applies, I still have to have regard to the relevant principles. Solicitors may be presumed to have greater knowledge and experience in respect of these types of agreement, but that is just part of the circumstances to which I should have regard. In this case the Claimants had the benefit of assistance from Ms Bambigboye who had legal training and experience (albeit I think in a different area of law) and in any event Mr. Daniel was himself an experienced businessman.
- I acknowledge that the suggestion that something may have gone wrong with the wording of a funding arrangement is a substantial matter requiring a close consideration. But in circumstances where the parties and solicitors are doing their utmost in difficult and demanding circumstances it strikes me as possible that even solicitors can, when considering their funding arrangements, fail to cater for every eventuality.
- Mr Wilcock said that that subclause 7.3 had been drawn from section 3 dealing with payment terms. He also said that the original drafting of the agreement included a clause that made clear (for the avoidance of doubt) that the Claimants would be liable to the solicitors for any shortfall in a costs recovery from the Opponents (removal, as I understood his case, indicating that the parties must have intended that there is no such liability). Both matters were said to support his case as to the way in which the retainers were to be interpreted. Quite apart from any evidential difficulties associated with these assertions, at least one of the further difficulties is that I am required to disregard pre-contractual negotiations when considering the meaning of a contract (see inter alia Wood, ; see too the Entire Agreement clause in retainers). Moreover I am not sure that it necessarily helps the Claimants where the subclause may have been in circumstances where the parties have chosen to locate the term under the heading ‘Recovery of Costs’ (my underlining).
- Nor do I accept Mr. Wilcock’s argument that the Defendant solicitors must have understood that subclause 7.3 would have precluded the payment of basic charges if no costs order or costs recovery was provided for in the settlement (and this is why they insisted, it is said, that the Claimant only settle on terms that the opponent pay costs). I deal with this matter further below in a different contact, but whatever concerns Mr. Ijieze and the Defendant may have had as to the terms of the agreement cannot determine the proper meaning of the contract. Indeed it made sense (even if V1 were acknowledged as incorrect) that the Claimants should press for and obtain a costs order in their favour and that they should be encouraged to do so.
- Mr. Wilcock also relied on a comment apparently by Mr. Ijieze in a Word ‘Comment’ box alongside clause 10.3 of the revised Chancery DCFA. This clause provides for payment of basic charges in the event of termination (by the client, on notice, see subclause 10.1) and the comment next it was that this clause, ie 10.3, was “protecting ourselves against unreasonable termination”. It was not clear to me how this might have shown that the Defendant foresaw, prior to entering into the CFA, that the Claimants would seek to avoid paying fees if there were no termination and that clause 10 (generally) protects against this (as Mr. Wilcock contended). The obvious intention of subclause 10.3 is to anticipate a situation where the client seeks to terminate on notice; it provides protection to the solicitors by providing for payment of their basic charges: the client might otherwise terminate and thereby escape liability for paying basic charges by the termination. It seems to me obvious why the Defendant would not accede to the request on behalf of the Claimants to limit the costs in 10.3 to a losing fee and it is this request which prompted the comment relied upon. This view of the comment does not assist the Claimants. I do not think in any event that this point assists the Claimants, not least because I am not entitled to have regard to pre-contractual negotiations; nor would it outweigh the concerns that I have raised as to the commercial consequences of the relevant clauses if the comment were read in the way that the Claimants contend.
- Turning then to V2, the difficulty with this interpretation, to my mind, is that it appears to require an enquiry of some forensic difficulty into what has in fact been recovered by way of costs, however it might be described. This is particularly so where the parties might not have turned their minds to any issue as to how a lump sum payment may be made up. Indeed there may also be difficulties associated with the such interpretation particularly where the claim/defence is in respect of for non-money relief so that no money is to be paid over.
- V3 is, to my mind, consistent with the analysis in Edmondson. It seems to me that the Supreme Court’s analysis of the function and effect of the provisions in the client care letter in the case support the conclusion that subclause 7.3 should relate to the recovery of costs where a costs order is made and cannot, as the terms of the client care letter could not in Edmondson, be used as means of ‘cutting out’ the solicitors from payment; an interpretation of a unding arrangement which permitted the client to do so was rejected. I have fully in mind Mr. Wilcock’s point that there is a difference between the facts of that case and this case. The wording of the main CFA was different (it expressly provided that the amount of costs was not limited to damages) and in this case, unlike that case, the clause creating that liability of for costs (section 3) and subclause 7.3, which Mr Wilcock says, limits the quantum of costs are in the same document (the DCFA). It does not matter however that I might not be strictly bound by this decision; it is plain to me that the reasoning does however assist in the proper interpretation of the retainers with which I am concerned.
- It strikes me as significant in considering the facts of this case that sub clause 7.3 is in a section dealing with the recovery of costs in and not the liability for basic charges. It is also, I think, notable, and as I pointed out in the course of the argument, that subclause 7.3 is to be read in sequence with subclauses 7.1 and 7.2 which both proceed on the assumption that a costs order has been made in the client’s favour and deal with the situation that arises when a claim is made against the Opponent (inter partes) for costs pursuant to such an order. Further, the term ‘Basic Charges’ does not state expressly that a costs order is required in order for there to be a ‘win’ (albeit it refers the solicitors “seeking” to recover costs in the event of a ‘win’) nor does the definition of ‘win’.
- Considering subclause 7.3 in this context and noting that there is no express requirement for a costs order to be made in order to trigger a liability for basic charges, either within section 3 which sets out the primary obligations as to payment, or indeed in the definition of ‘win’ where it might be expected to be seen (if it were to have the effect contended for by the Claimants) it seems to me that subclause 7.3 should be read as applying where a costs order had been made and to the extent that a costs order is made, so that in these circumstances the clause only limits the quantum of costs such that the solicitor/client cost liability mirrors the inter partes costs recovery, but not when no order at all has been made.
- The Claimants’ interpretation, were it to be correct, would in effect re-define the term ‘win’ and is to be weighed against the commercial considerations I have set out above.
- Mr. Wilcock argued that the problem with all the interpretations save V1 was that they expose the client to a claim for costs which might equal (or, I suppose, exceed) the sums recovered by way of damages or otherwise. But in circumstances where a claim has been ‘won’ it might ordinarily be assumed that a party could agree a costs order in their favour. If instead the client choses to receive a financial payment in another form that party cannot be surprised that the solicitor should maintain its claim for costs whether strictly out of that sum or up to the limit of that sum or indeed otherwise. That the client could not simply cut the solicitor out of their costs was material to the approach of the Supreme Court in Edmundson; moreover the concern that Mr. Wilcock raised did not deter the Court in that case from reaching a conclusion which might have the effect on the claimants that all their damages be used to pay of costs. The client can scarcely be ignorant of his liability to his solicitor for basic charges and it seems to me to be entirely natural that when entering into a ‘drop hands’ costs agreement there should be a discussion about the client’s liability to solicitors in advance of entry into a settlement agreement (as the Defendant proposed here). In short the client can be expected to consider, and perhaps address, this matter before a final agreement with opponent.
- I agree with Mr. Benson that reference to terminology such as ‘CFA Lite’ is not helpful: the term ‘lite’ implying perhaps that solicitor’s liability to pay legal representative’s fees and expenses only to the extent that sums are recovered in respect of the relevant proceedings, whether by way of costs or otherwise. Indeed neither side, at least initially, relied upon such an approach. The meaning of words used in a contract are ascertained by using the principles set out above against the background knowledge which would reasonably have been available to the parties, not just one side which is relevant; and it is not clear to me that any such terminology could properly be deployed by Mr. Wilcock in support of the Claimant’s interpretation.
- The reasoning in Edmondson might also suggest that a restriction on the amount of basic charges payable to the financial sums recovered should apply here. However it does not, as I understand it, appear to matter whether there is such a restriction in this case as it is common ground the further fees sought do not exceed the financial recovery and in absence of detailed argument on this point I do not think I should do so. I have some difficulty seeing how a financial restrictions could apply in a case in which financial relief (which is perhaps the case in the DFCA or indeed that such would be inferred on the fact of this case (cf Edmondson). If it were to matter I could however address it.
- It does not matter for current purposes whether it is V3 that applies or V4: on either interpretation the Defendant is entitled to be paid its reasonable basic charges. The only effective difference between V3 and V4 would arise in a situation where a costs order has been made in the clients’ favour – which is not the situation here. As I indicate above neither parties contend for V4 and I was (understandably) not addressed in any detail on it by Mr. Benson. The fact that the obligations or provisions in subclauses 7.3 and 7.2 were set out in separate clause would appear to weigh against this interpretation which reads 7.3 as complimentary to 7.2 (indeed on Mr. Wilcock’s argument V4 would make 7.3 otiose).
- I should perhaps also say that at the end of his submissions and without having raised the point either in the Statement of Case or in the skeleton argument (he was then relying upon) Mr Wilcock suggested that if V1 were not correct then there would an unenforceable contract for a share of the ‘spoils’ of the litigation, in effect an unlawful contingency fee agreement (see Chitty 18-098 and 18-099). Not only was it too late to raise such a point in this preliminary issue hearing the point seemed to me to me, in any event, to be misconceived. By V2 or V3 the parties are contracting for payment of solicitors’ base fees on a conditional basis but not for a share of any damages. An arrangement whereby costs are in effect paid out of damages (something obviously quite different for a contingency fee agreement) is entirely common place, particularly after the LASPO reforms (which ended the recovery of additional liabilities from defendants in most litigation). In any event not only does V3 not necessarily contain the restriction that basic changes could not exceed damages but there could nothing objectionable about that if it were the case. Not only did such a restriction not seem to trouble the Supreme Court in Edmondson such restrictions are entirely common place in CFA’s, indeed the Conditional Fee Agreements Order 2013 restricted the payment of success fees by reference to damages recovered.
- It appeared at one stage to be common ground that nobody would have entered into the contract knowing that it had the meaning set out V1. Even Mr Wilcock, as I recall from his written submissions, appeared at one stage to accept that it would be absurd for the solicitors to have done so. His arguments in his supplementary submissions appear to have evolved somewhat since then. I have considered all his arguments, even if I have not expressly referred to them. I am not persuaded by any of them. Even if there might be refinements as between say V3 and V4 the agreement must have been that where an agreement is reached through mediation which gives rise to a win, basic charges are payable. Applying a unitary and iterative process, it seems to me, be clear for the reasons that I have set out above that V3 is the correct reading and that the Defendant is entitled to be paid its basic charges.
- It seems to me that the Claimants would have succeeded only if they are correct about V1. It was contended as I understand it, that the sums recovered (essentially by way of rent arrears) would in fact be used to pay debts other that those by way of costs, and such a recovery could not be treated as recovery of costs (indeed as Mr. Wilcock pointed out clause 3.26 (a) of the deed which obliges the First Claimant to discharge sums due pursuant to a mortgage). In the event it is not necessary for me to decide this as I do not consider V2 to be correct. However it seems to me clear from the conduct of Mr Daniel at mediation and from what happened afterwards that the sums recovered were, in the contemplation of both parties and mutually understand the other to understand, to be used to pay the Defendant’s costs and if I were necessary to do so I should find that the basis charges sought have been recovered.
IMPLICATION OF A TERM
Discussion and findings
- I think the requirements set out above are satisfied. If I were wrong to interpret the retainers as I have, I would have reached the conclusion that such a term to the same effect as V3 is implicit in the DFCAs.
- Such a term would be reasonable and equitable and it would avoid the absurd and unfair consequences of V1. It is to my mind an entirely safe assumption that such a term would have been agreed had the issue been raised before the contact was finalised and, moreover, that it is so obvious that it ‘went without saying’ that sub clause 7.3 was to be read as consistent with basic changes being payable in the event of a ‘win’ and that this subclause applied only if and to the extent that an order or provision for costs is made in the client’s favour. It would be necessary to give business efficacy to the retainers and plainly in my view capable of clear expression and be formulated with sufficient precision.
- Mr Wilcock argued that such a term would be inconsistent with and contrary to the express terms of the contract. In Barton the Court was concerned with the terms of a contract between the seller of a property and the introducer of a purchaser of the property; the introducer would receive a payment of £1.2m if the property were bought for £6.5million. It was held that introducer’s fee substantially exceeded reasonable remuneration for the work to be done and the Court, by a majority, declined to read in a requirement to pay a fee when the property was sold for less than £6.5m.
- Lady Justice Rose (who gave the leading judgment) said that: “…, an agreement whereby someone contracts for a higher than normal payment on the fulfilment of a condition and is prepared to take the commensurate risk of getting nothing if the condition is not fulfilled is not a bizarre or uncommercial contract.“
- She went on to say at :
“What would be strange, in my judgment, would be for [the seller of the property] to agree to what would become a one-way bet for [the introducer]; that he should receive a fee of almost three times the reasonable fee if the sale price were £6.5 million or more and still receive the full reasonable fee of £435,000 if the sale price were something less than that. I do not see what benefit there would be for them in concluding such an agreement.”
- It is in this context that a finding was made that the implied term proposed would be inconsistent with express terms of the contract. However that situation is to be contrasted with the situation here where more natural understanding of the contract as a whole is that the solicitors would get paid if the claims succeeded. A clause cannot I think be said to be inconsistent and/or contradict the express terms merely because if without it there would be no such term: it is obvious that will always be the case where a terms has to be implied. In my view the a term to the effect of V3 would not be contrary to the express terms of the contract but arise by implication from them.
AN ARGUMENT THAT THE FEES WERE CAPPED TO £50,000
There was a further argument that, because there was a mention of costs being around £50,000 during the course of the mediation, then the recoverable sums should be capped at that amount.
- Cap on fees/costs of £50,000 by an estoppel
- The parties disagree as to the nature and effect of representations made as to the defendant’s fees and disbursements in the course of the mediation and as to whether there was any material reliance upon them.
3.1 The law
- It is not, I think, necessary for me to set out the relevant principles in any detail in order to deal with this. It is plain that in order for an estoppel to arise:
(1) there must be a promise or an assurance or representation (in the nature of a promise) which is intended to affect the legal relationship between the parties and which indicates that the promisor will not insist on their strict legal rights (Chitty 6-098);
(2) the representation must be clear or unequivocal (Chitty 6-099); and
(3) it must also be “inequitable” for the promisor to go back on the promise; the promisee must have acted in reliance on the promise so that they can no longer be restored to the position in which they were before they took such action; if the promisee can be restored to that position, it will not be inequitable for the promisor to go back on the promise. (Chitty 6-103)
Discussion and findings
- I think it is clear that if solicitors had represented that its fees were no more than a particular figure and in reliance upon that representation a client were to have entered into an agreement with opponents in litigation on a ‘drop hands’ basis, or one which did not provide for costs in their favour, this could amount to an estoppel preventing the solicitors from claiming a sum in excess of that which they had said was payable. The client may be taken to have acted to their detriment by relying upon the representation and agreeing to payment of a particular sum by the opponent, making it inequitable for the solicitors to claim any higher sum. That was not however the case here.
- I did not have the benefit of any attendance note on this issue. There had however been a very significant amount of correspondence as to the Defendant’s fees and disbursements prior to and in the run up to the mediation. In a letter sent on 2 March, the day before the mediation, Mr. Ijieze wrote to the Opponents about unrecovered interim costs which alone were over £33,000 plus VAT (over £40,000 inclusive of VAT; Mr. Daniel was provided with a copy of this letter on the same date. He was informed of other costs including counsel’s fees (which for the mediation alone were £5,000 plus VAT) and would have been aware that other work had been done by the solicitors progressing the litigation and in preparation for the mediation. The consolidated claims had been costs budgeted and the costs budgets were sent to Mr. Daniel on 10 October 2021. Having provided Mr. Daniel with such information he would have understood that a substantial amount of costs was payable by the Claimants. It was perhaps important to remind him of the Claimants’ liability to pay costs before entering into any binding agreement but Mr. Ijieze was, it strikes me, likely to have proceeded on the assumption that Mr. Daniel had a pretty good idea of the amount of costs involved and any reference to a figure was likely to have been in passing. Against this background and in circumstances where the primary focus was on a complex negotiation with the Opponents involving a number of different elements with a number different matters being discussed in different online rooms, it is to my mind understandable that any such figure was not written down. Moreover to my mind it is inherently unlikely that Mr. Ijieze would have thought costs were limited to £50,000 and, to my mind, unlikely that he would have made any such representation.
- When the issue of the defendant’s costs was raised in the mediation by Mr. Ijieze, he was not offering an estimate of the costs which was to be relied upon. The discussion appears to have taken place at relatively early stage of the negotiations. It seems to me clear that that any representation as to costs or the fees of solicitors made in the mediation could in any event only have been in respect of costs incurred up to that point; and thus be a broad approximation. The Defendant was charging on the basis of a hourly rate. That was known to the Clamant. Nobody knew at the initial stages of this mediation how much time would reasonably be required to complete the work that was necessary to for a deal to be reach. Whatever words were used by Mr Ijieze it seems unlikely that they could have suggested to Mr. Daniel there was likely be a cap on fees and any indication as to the outstanding amount was in broad terms which would have made it clear that the costs might well exceed £50,000 (consistent perhaps seems with the WhatsApp message of 13 March from Mr. Ijieze). Whilst the information provided does suggest that Mr Daniel sought to recover by way of rent arrears a figure of reflecting the figure Mr. Ijieze had referred to, I think he did so at his own risk knowing that he might owe his solicitors more than this; such a risk being considered reasonable in the context of the risk of not achieving a settlement before trial.
- On this point I have in mind that Mr Daniel is supported in his account by Ms. Bambigboye who says that Mr. Daniel told him that Mr. Ijieze said that costs were £30,000 to £50,000. If Ms. Bambigboye correctly recounts the detail of what she was told by Mr. Daniel then Mr. Daniel was inaccurate in his account of what was said in mediation. It is to my mind unlikely Mr. Ijieze would have suggested that his costs could be as low as £30,000 or that Mr. Daniel would have thought that. Indeed it is perhaps of significance that in his email of 8 April Mr. Daniel described having been told [in mediation] that costs would be “in the region of £50,000 (including disbursements)” – not £30,000 to £50,000 and this representation seems inconsistent with a clear or unequivocal representation that the costs would not exceed £50,000. In my judgment there was no clear or unequivocal representation to that effect.
- Nor, even if were wrong about this, am I satisfied that Mr. Daniels relied upon any such representation or that if he did, he did so to his detriment. Even if Mr Daniel had not specifically turned his mind to the precise figures in the various emails that were sent to him about costs he would have had some idea of the costs that were liable to exceed £50,000 (not least because of his ongoing liability for interim costs which had been awarded to the Claimants but not paid) and I reject his evidence that he had not considered such information. In any event any agreement, such as it was, at mediation, was subject to contract. As I have noted above Mr Daniel was informed by email on 15 March that the fees were some £75,000 plus VAT. It is perhaps surprising that when he received this email he did not specifically refer to the representation that is now alleged to have been made. But he plainly knew at this stage (if he did not know before this) before entering into the deed that the Defendant would be seeking over £50,000 in basic charges.
- Some time shortly before the sending of the first email in the chain I have set out above on 15 March it appears there was some discussion between Ms. Bambigboye and Mr. Ijieze about costs. Ms. Bambigboye said that Mr. Ijieze had accepted that he had made a mistake and should not have told Mr. Daniel that his costs were some £30- £50,000 because their fees were between £50,000 and £60,000 something. I accept that Mr Ijieze would have been aware that the impression he might have given at the mediation was the fees could have been as low as £50,000 and that this would have required some correction. Further, I accept that he was likely to have made it clear that he was correcting any such misapprehension. But he was not correcting a mistaken indication that the costs could not exceed £50,000, so I do not think this assists the Claimants.
- Accordingly, and for all these various reasons I must reject the Claimants’ case that there should be a cap of £50,000 as alleged.
- I cannot however leave this issue without raising some concerns as to how the claim for costs appears to have increased so substantially from the figures that were put in in the emails of 15 March. I raised myself the issue as to whether even if there were no estoppel, a representation given as to costs may have an effect on reasonableness of the costs (per the guidance in Mastercigars Direct Ltd v Withers LLP  EWHC 2733 (Ch) and  EWHC 651 (Ch) (see ). In the earlier of these two judgments Morgan J explained at  that an estimate of costs may be a useful ‘yardstick’ by which the reasonableness of the costs may be measured: if there is no satisfactory explanation for any departure from any estimate something less than an estoppel may suffice in terms of reliance for the purpose of deciding whether any departure from an estimate may be reasonable . The following passage of the later judgment has recently cited with apparent approval by Vos MR in the context of non-contentious costs (Belsner v Cam Legal Service  EWCA Civ 1387, ):
“ …even if the solicitor has spent a reasonable time on reasonable items of work and the charging rate is reasonable, the resulting figure may exceed what it is reasonable in all the circumstances to expect the client to pay and, to the extent that the figure does exceed what is reasonable to expect the client to pay, the excess is not recoverable…
- I was not sure Mr Benson was correct to suggest that the guidance given in Mastercigars only applied where an estimate of costs was provided in advance of the work to be undertaken and not here. However I consider that further arguments and indeed consideration of the detail as to what happened is appropriate. On the face of what I have seen however there seems some basis for thinking that costs indications of the sort given at least on 15 March might be a yardstick against which to measure reasonableness. However, I leave all such matters for further consideration if the parties cannot now resolve their remaining differences.