COST BITES 81: SOLICITOR WORKING UNDER A CFA HAS A DUTY TO KEEP CLIENT INFORMED OF THE “STAGGERINGLY HIGH LEVEL OF COSTS” IN THE ACTION, INCLUDING EXPERTS: HIGH COURT DECISION

There is much for litigators to learn from the judgment of Mr Justice Fancourt in Forster v Reynolds Porter Chamberlain LLP [2023] EWHC 1150 (Ch). Here I want to concentrate upon one element of the case – the need to inform the client of the costs of litigation, experts in particular.  The defendant assumed that because the work was being done under the terms of a conditional fee agreement the claimant required very little information about the costs.  The judge held that this assumption was wrong.  The costs when reaching trial would be in the region of £5 million. The claimant should have been told of this.

“It is hard to imagine that Ms Forster would have had nothing to say if warned in September 2010 that costs already exceeded £2 million, and had been told in December 2010 that costs by the start of the trial might exceed £5 million, with the 100% mark up.  These figures fall to be compared with an initial estimate of costs of £700,000… The answer for RPC cannot be that they acted on a “no win no fee” CFA because the CFA expressly requires RPC to give Ms Forster the best information possible about the likely costs of her claim, and to advise her of any circumstances affecting the amount of costs to be incurred, the degree of risk involved or the cost-effectiveness of continuing the case.  The staggeringly high level of costs, as compared with the value of the claims, self-evidently impacted the cost-effectiveness of the case.”

THE CASE

The claimant instructed the defendant firm of solicitors firm in relation to an unfair prejudice petition relating to a limited company.   The defendant took on the work on a conditional fee basis. The unfair prejudice petition was eventually settled. However the claimant complained about the defendant’s conduct of the case, in particular the enforcement of the settlement.

 

ALLEGATIONS OF BREACH OF DUTY IN RELATION TO COSTS

There were allegations, accepted by the judge, that the defendant failed in its duty to keep the claimant fully informed of the level of costs that were being incurred.   Those assertions were largely accepted by the judge, but were not causative of any great loss in the current case.

THE JUDGMENT

Allegations of Breach of Duty

  1. Ms Forster alleges that RPC acted in breach of duty and negligently in the following principal respects, summarised broadly:
  2. i)Failure to inform her about the exceptionally high level of costs that were accruing throughout the retainer, with the commensurate risk of a shortfall in costs recovery that would erode any judgment she obtained;
  3. ii)Failure to advise her adequately on the benefits and disadvantages of using a Deloitte partner as her expert witnesses, rather than Ms Cheung, including the need to fund Deloitte disbursements;…

Information about costs being incurred

  1. As to advice on quantum of costs, there is no doubt (and Mr Ballinger and Mr Brown did not really dispute) that RPC failed adequately to keep Ms Forster informed of the level of fees that they were incurring in acting for her. She only discovered the amount of costs incurred by July 2010 as a result of reading the ATE insurance proposal in August 2010, and was not told of the amounts and estimated future amounts reported to RPC’s CFA committee in September 2010. She only learned of the costs incurred up to December 2010 at the mediation. By that stage they were almost £2.5 million.  Thereafter, Ms Forster was at no time informed of the increase of costs up to and including the trial, which resulted in a bill of costs in excess of £5.3 million being filed.
  2. The reason she was not told was that Mr Ballinger considered that it was not a matter to concern her, since RPC had been retained on a “no win no fee” basis. However, this importantly overlooked the risk to Ms Forster of the shortfall between the chargeable fees and disbursements and the costs recovered from the Opponents eating into any compensation that she was awarded.  This was already a risk by September 2010 and was probably inevitable by the date of the mediation, shortly after which Ms Forster offered to settle at a figure that would have been exceeded by irrecoverable costs. The likelihood of that was increased by the instruction of Leading Counsel in February 2011, but Ms Forster was not advised about that. Further, the higher the costs were, the harder it would be to arrive at a reasonable settlement of the claim.
  3. It is hard to imagine that Ms Forster would have had nothing to say if warned in September 2010 that costs already exceeded £2 million, and had been told in December 2010 that costs by the start of the trial might exceed £5 million, with the 100% mark up.  These figures fall to be compared with an initial estimate of costs of £700,000.
  4. The answer for RPC cannot be that they acted on a “no win no fee” CFA because the CFA expressly requires RPC to give Ms Forster the best information possible about the likely costs of her claim, and to advise her of any circumstances affecting the amount of costs to be incurred, the degree of risk involved or the cost-effectiveness of continuing the case.  The staggeringly high level of costs, as compared with the value of the claims, self-evidently impacted the cost-effectiveness of the case.
  5. However, no loss was caused by RPC’s breach of its duties in this regard. Ms Forster does not allege in this claim that her claim against Bleasdale and Cariss would have been settled earlier, or more favourably, but for the high level of costs. The only loss that Ms Forster claims to have suffered is the lost opportunity to recover the £350,000 for which she agreed to settle her petition on 30 March 2011, on terms that it would be paid by 30 September 2011. Ms Forster has no liability for RPC’s fees or any disbursements.

 

INFORMATION ABOUT THE COST OF EXPERT WITNESSES

Selection of expert witness

  1. RPC agreed to take on Ms Forster’s case on a CFA at a time when Ms Cheung was the retained adviser on the value of the Company and Ms Forster’s interest in it.  Ms Cheung had the confidence of Mr Marshall and Ms Forster. RPC did not stipulate in the retainer for the right to nominate a different expert witness. It appears to have been Mr Ballinger’s decision that Ms Cheung should be replaced by a partner in a large City firm of accountants.  It was presented to Ms Forster as a fait accompli, to her and Ms Cheung’s considerable surprise. There was no advice given about options or advantages or disadvantages of instructing such a firm, or discussion with Ms Cheung of how well she would be able to carry out her instructions or act as an expert witness. 
  2. It may be that Mr Ballinger was justified in thinking that, presentationally, a partner from BDO or Deloitte would have more impact on the Opponents and might hold more sway in court: this was not a straightforward valuation case. I am unable to make any decision about that, as I have not seen any of the work that Ms Cheung and Mr Robinson did on the case.  But instructing Deloitte rather than Mall & Co came at a high price.  Ms Forster should have been advised of the implications of this change, and how a different expert witness might be funded – but she was not. She was simply told that the ATE cover would be extended and a loan could be obtained to cover the fees on an interim basis.  Again, Mr Ballinger’s view seemed to me to be that these were simply costs of the litigation, with which Ms Forster was not directly concerned.  This was quite wrong, as Ms Forster in the event had to sign up to onerous terms of the Deacon Funding Agreement in order to pay Deloitte as the case went on, and she was personally liable for interest on the loan. This was all known by Mr Ballinger before Deloitte was approached.
  3. Ms Cheung had agreed to defer payment until the end of the case.  To an impecunious person such as Ms Forster, that was a considerable advantage. It is possible that a partner of a large firm might similarly have agreed to defer payment – given that the instructions were only to be given at the end of October 2010 and the case was due for trial only 5 months later. If the disbursements were to be covered by an ATE policy, there was no serious risk to the firm, only delay.
  4. Mr Ballinger said that, given the late stage of proceedings, he was not satisfied that Ms Cheung would be able to operate within the required timescale, or had the right background to provide a valuation. However, there is no evidence that he asked her. He had already formed the view that a top firm needed to be instructed and told Mr Buss of ARAG two days before the conference at which he first met Ms Cheung that he had BDO in mind, and that the budget was £150,000.  In the event, BDO were conflicted and so Mr Ballinger turned to Deloitte, where he already had contacts.  Deloitte’s budget was up to £200,000.
  5. Mr Ballinger said in his witness statement that he recalls that he did ask Deloitte whether they would be prepared to defer their fees until the conclusion of the case, and that they “robustly refused that request”.  Having heard Mr Ballinger cross-examined on the subject, I am unable to accept that evidence. It was clear to me that Mr Ballinger had no recollection of having done so, and was really only saying that he believed he “would have” done so.
  6. I was unimpressed with Mr Ballinger’s attempts to explain what if anything he remembered about this. Nothing about payment of fees is contained in the correspondence or note of the initial meeting with Deloitte. A subsequent meeting note records that “MB explained that [sic] the method of funding of Deloitte’s fees and the case in general. He also explained the level of cover in place for expert fees.” There is no record of a request to defer payment. On the same day, Mr Ballinger wrote to Ms Forster explaining the need for an increase in ATE cover and funding for cash flow. This would have been an obvious point at which to explain that he had asked Mr Robinson or Mr Rees to agree to defer fees, on the back of the ATE Policy, and that they refused; but the email does not do so. When Deloitte sent RPC a draft engagement letter, which provided for monthly invoices, Mr Ballinger had a meeting with Messrs Robinson and Rees to discuss the terms. Mr Ballinger pushed back on the cap on liability and a negotiation ensued, which resulted in an offer to double the cap.  Nothing is recorded about a request to defer fees.
  7. I conclude that Mr Ballinger did not ask for Deloitte’s fees to be deferred. He did not do so because he already had in mind that the fees would be covered by the ATE Policy and by a loan from Giltspur, on the same terms as Giltspur had funded another case on which Mr Ballinger had been involved. On 1 November 2010, before any agreement was reached with Deloitte, Mr Ballinger had emailed Mr Buss in relation to the additional ATE premium, copied to Mr Deacon and saying to him:

“John – this is the investor case I mentioned, where we are looking for a disbursement funding facility similar to the one we did on Digital Pos. Probably just need the same documentation again – perhaps we could have a chat?”

  1. In my judgment, Mr Buss of ARAG and Mr Deacon of Giltspur came as a convenient package, and Mr Ballinger was content that RPC would be able to draw down funds from Giltspur (or, as it turned out, Mr Deacon personally) to pay Deloitte’s fees. In that knowledge, he was happy for RPC to commit to retain Deloitte on its terms even before a funding agreement had been put in place. Given the close working relationship between RPC and Giltspur, and between Mr Ballinger and Mr Deacon personally, Mr Ballinger was confident that – when needed – the loan would be forthcoming, and he also knew, as he told Ms Forster, that the interest rate would be 24%.
  2. In my judgment, RPC failed to advise Ms Forster, in breach of duty, on the benefits and disadvantages of retaining Deloitte as expert witness, as compared with retaining the services of Ms Cheung or engaging a different expert witness. That included the full financial consequences of retaining Deloitte, as compared with other expert witnesses. What Mr Ballinger did was to tell Ms Forster that Ms Cheung was not suitable and that a large City firm was required; then find a partner at Deloitte suitable for the task; and then provide a ready-made solution for the consequential funding requirement.  He did not advise Ms Forster on the choices that she had, or on what terms as to payment Deloitte or other suitable witnesses might be willing to agree.
  3. Despite the CFA, Ms Forster remained the client and RPC owed duties of loyalty to her, as well as contractual duties to keep her informed of matters that had an impact on the cost of the litigation and matters that could adversely affect her interests. It was her decision which expert witness to retain, to be made with the benefit of RPC’s advice – strong and forthright advice, if appropriate – not RPC’s decision, as long as her instructions did not prevent RPC from doing their work properly, or require them to work in an unreasonable way.  If, having been instructed by Ms Forster to retain Ms Cheung as expert, RPC considered that Ms Forster was asking it to work in an unreasonable way, or that as a result she was unlikely to win the claim, then they had the right to terminate the CFA under clause 11(b).  Otherwise, they had to respect their client’s informed wishes.
  4. RPC disputed this conclusion (as it applies on this point and in relation to the alleged failure to enforce the First Tomlin Order in accordance with Ms Forster’s instructions) on two grounds.
  5. (1) Interpretation.         First, Mr Campbell submitted that, as a matter of interpretation of the CFA, RPC were permitted in appropriate circumstances to have regard to their own interests. These circumstances, he argued, include a case where RPC reasonably concluded that the client’s instructions would have disastrous consequences for them both. He submitted that in a CFA of this kind a solicitor had to have the ability to protect their own interests, particularly where the solicitor had a greater financial interest than the client.
  6. Mr Campbell relied on Groom v Crocker [1939] KB 194 and Butler v Bankside Commercial Ltd [2020] EWCA Civ 203[2020] PNLR 15 in support of his argument, as showing that solicitors are entitled to act contrary to clients’ instructions.  In my judgment, neither authority stands for any such general proposition: they are both cases on the true meaning of express terms of particular contracts.
  7. In Groom v Crocker, an insurance policy gave the insurer the right to appoint a solicitor to act for the assured and to “have absolute conduct and control of all or any proceedings against the assured” (condition 2). The contract of services was nevertheless made between the assured and the solicitor, such that the assured was the client. The insurer without the instructions of the assured admitted his liability for a motoring accident, pursuant to a collateral bargain struck with the insurer of the driver primarily responsible for the collision.  The issue was whether the solicitor could act on the insurer’s instructions in that regard.
  8. The Court of Appeal held that it could not do so. Lord Greene MR said that the duty of such a solicitor cannot be the same as that which arises in the ordinary case of solicitor and client, but that the extent to which the solicitor could properly act on the insurer’s instructions depended on the true interpretation of the policy. He noted that the assured and the insurer had a common interest in the proceedings, and said that the effect of the policy wording was:

“… to give to the insurers the right to decide upon the proper tactics to pursue in the conduct of the action, provided that they do so in what they bona fide consider to be the common interest of themselves and their assured”

but that they could not pursue their desire to obtain a collateral benefit.

  1. Scott LJ agreed that the policy did not entitle the insurer to conduct the assured’s defence by reference to a secret bargain with another insurer.
  2. MacKinnon LJ considered that condition 2 of the policy was subject to an implied term that the solicitor appointed should act reasonably in the interests of both assured and insurer.
  3. That, however, was a case where the solicitor had effectively to take instructions from someone who was not his client. There was an express provision that cut down the rights of client in favour of the insurer. The majority of the judges agreed that this provision was nevertheless subject to an implied limitation that the interests of the client also had to be taken into account. It was not a case where the relevant contract required the solicitor to act in the best interests of the client.  The decision turned on the words of that contract.
  4. Butler v Bankside Commercial Ltd was a case of a conditional fee agreement but it concerned the true meaning and effect of a condition entitling the solicitors to cease acting for the client, in the following terms:

“We can end this agreement if you reject our opinion about making a settlement with your opponent. You must then … pay the basic charges and our disbursements, including barristers’ fees; [and] … pay the success fee if you go on to win your claim for damages.”

B did not accept the solicitors’ advice to make a counteroffer of settlement and they ceased to act. When B recovered an award of less money at an arbitration, the solicitors sued for their fees and success fee.

  1. The only issue was whether the wording of this condition, which expressly conferred rights on the solicitors, applied where advice was given to make a settlement offer or only to advice on a settlement offer made by an opponent.
  2. The judge held that, given that the solicitors were themselves at risk in relation to the case, their protection against the whims of an unreasonably optimistic client should not be interpreted as turning on fine distinctions between advice about an offer received or an offer to be made.  That was a case in which an express term of the contract conferred a degree of protection on the solicitors against unreasonable behaviour of their client. The only issue was its breadth.
  3. In principle, despite a solicitor owing a duty of fidelity to their client, the duty can be qualified by the express terms of the contract. A retainer can include agreed terms that allow a solicitor’s judgment (or someone else’s) to supplant the client’s instructions. Absent such a term, the solicitor must respect the client’s instructions, if what is required is not improper or in breach of the solicitor’s overriding duty to the court.
  4. The fact that the CFA includes “no win no fee” terms and provides a significant uplift on fees in the event of success does not mean that a different approach to solicitors’ duties and the interpretation of the retainer is required.  The well-known principles of interpretation are those summarised by Carr LJ in EMFC Loan Syndications LLP v The Resort Group plc [2021] EWCA Civ 844[2022] 1 WLR 717 at [57]. In reaching my decision, I bear in mind in particular the passages at [15] to [23] of the judgment of Lord Neuberger of Abbotsbury PSC in Arnold v Britton [2015] AC 1619 and at [11] and [12] of the judgment of Lord Hodge JSC in Wood v Capita Insurance Services [2017] AC 1173.
  5. The CFA does not provide for RPC to be entitled to have regard to its own interests, apart from particular conditions that confer rights on them, such as conditions 7, 11 and 12.  There is an express term that requires RPC otherwise always to act in the client’s best interests. The retainer was to pursue Ms Forster’s claim, enforce a judgment and assess her costs. There is therefore no distinction in principle between the claim and the enforcement stage, as regards this term. Condition 10 specifically provides for the possibility that RPC and Ms Forster have different views when a settlement is considered. But this only applies to proposed settlements that, if accepted, would entitle RPC to a success fee – i.e. settlement of the claim itself, such that “success” is achieved.  Not even under that condition is there provision for RPC’s view or interests to override Ms Forster’s. There is no equivalent condition where there is disagreement about the method of enforcement of a judgment or settlement.
  6. The express terms requiring Ms Forster to give instructions that allow RPC to do their work properly, and not to ask RPC to work in an improper or unreasonable way, are not obligations to defer to RPC’s own interests at any stage. They are terms governing the way that Ms Forster is to act to enable RPC to do its work, by giving appropriate instructions to them when needed, not an obligation requiring Ms Forster to allow RPC to have regard to their own interest in deciding what to do.  Thus, Ms Forster was not in breach of either term because she formed one view about the reasonableness of the enforcement strategy, having regard only to her interests, whereas RPC and Counsel formed a different view, inevitably taking into account their interests.
  7. It is impossible to read between the lines of the express terms, or interpret any of them, to reach a conclusion that the express terms of the CFA mean that RPC were permitted to have regard to their own interests, either generally or in connection with enforcement of a judgment or settlement.
  8. (2) Implied term.           Second, Mr Campbell submits that there is to be implied into the CFA the following term (using the pronouns and tense in the CFA terms):

“We can have regard to our own interests and take reasonable steps to protect them, even if this is contrary to your instructions, if you refuse to accept reasonable and relevant advice from us.”

This is argued to be both necessary to achieve business efficacy for the CFA and sufficiently obvious that it went without saying when the CFA was made on 17 March 2010: see the summary of the legal approach to implication of terms in commercial contracts in Yoo Design Services Ltd v ILV Realty Pty [2021] EWCA Civ 560, per Carr LJ at [51]

  1. In my judgment, this term is not implied for the following reasons:
  2. i)It is inconsistent with the express term requiring RPC always to act in Ms Forster’s best interests;
  3. ii)Although arguably a reasonable term that the parties might – if they had known what was coming – have agreed, it is not necessary to make the CFA work. The CFA does not lack commercial or practical coherence as written. When it was made, RPC had carried out research on the assets of Ms Bleasdale and were satisfied that she was good for the money, otherwise they would not have taken on the claim on the basis that they did. There was therefore no anticipated conflict between client and solicitor once a judgment or a settlement was obtained. That is doubtless why condition 10 addresses only disagreement on a settlement that would result in RPC earning their uplift. It is not necessary to imply a term to deal with an issue that was not envisaged when the parties make their contract.  There is no suggestion that the term is otherwise necessary to give the CFA commercial or practical coherence.

iii)          The term is only one of a number of possible reasonable terms that the parties might have agreed to deal with conflicts of interest and duty during the retainer. As Mr Fennell suggested, another such term would enable RPC to substitute its own view of what was in Ms Forster’s best interests if her view was unreasonable, or (in a further alternative) if it was irrational; or, alternatively, to permit RPC to have regard to its own interests if Ms Forster’s instructions were irrational.

  1. iv)It is far from clear that Ms Forster would have thought it obvious that RPC should be able to take steps to protect its own interests simply because RPC’s advice (that Ms Forster did not accept) was “reasonable and relevant”. It is easy to envisage two competing reasonable assessments about what should be done, either in the conduct of the litigation or in enforcing a judgment.
  2. Further, given the fiduciary relationship between solicitor and client (even under a conditional fee agreement, once it has been concluded: see Belsner v Cam Legal Services [2022] EWCA Civ 1387 at [72], [75]) and the potential for conflicts of interests inherent in a conditional fee agreement, it would be very surprising for a general term to be implied entitling the solicitor to prefer their own interests over the client. The expectation, where an actual conflict of interest and duty may arise, is the opposite, namely that the solicitor will so conduct matters to avoid an actual conflict, if possible, and where there is an unavoidable conflict ensure that it does not prejudice their client’s best interests. There would have to be very particular and cogent circumstances to justify the implication of a term to the opposite effect. This is not such a case.
  3. The loss that Ms Forster complains that she suffered because of RPC’s failure to advise her on the consequences and terms of Deloitte’s retainer is not adverse costs or the costs of retaining Deloitte as such, but losses following from the Deacon Funding Agreement that was needed as a consequence of the retainer of Deloitte. In final submissions, Mr Fennell contended that the loss attributable to this breach was £17,000, which was agreed to be the interest on the Deacon loan for which Ms Forster was liable out of the damages to be paid to her. Mr Fennell did not submit that RPC’s negligent failure to advise Ms Forster appropriately on expert witness selection caused Ms Forster to lose the chance to enforce the First Tomlin Order. That in my judgment was a realistic approach because the settlement at £350,000 that was achieved may well have been because of the cogency of the Deloitte valuation evidence – which was served at a late stage, after previous settlement negotiations at about the same level had failed.