COST BITES 130: WHAT COSTS ARE RECOVERABLE WHEN A CLIENT SACKS A SOLICITOR WORKING UNDER A CFA? STICK OR TWIST

The judgment of Senior Costs Judge Gordon-Saker  in Sellers v Simpkins [2023] EWHC 3296 (SCCO)  considers the issue of what costs a client is due to pay when they have terminated the retainer with a solicitor acting under a CFA. There are important lessons here for: (i) a client terminating a conditional fee agreement; (ii) lawyers advising a client who has terminated a CFA and who now wants to instruct them; (iii) lawyers whose clients have terminated a conditional fee agreement. In particular it is important for the solicitors, whose client has now terminated the agreement, to consider whether they want to seek recovery of costs in full now, or await the result of the case (“stick or twist” as it was put).

“In my judgment the overall cap does not apply where the solicitor elects to claim their charges before the conclusion of the claim … but it does apply where the solicitor elects to await the outcome of the claim.”

THE CASE

This was an action relating to the claimant’s liability to pay costs to the defendant. The claimant in this costs action instructed the defendant solicitors in a personal injury case, the defendant worked under a conditional fee agreement. The claimant terminated the agreement prior to settlement and another firm of solicitors took over conduct of the case.  The case was settled by the new solicitors on an “all inclusive” basis, inclusive of costs.   The defendant was invited to send details of his costs prior to the meeting but did not provide them.

On termination the defendant indicated that he required payment of the costs under the terms of the CFA.  The bill was then produced and totalled £496,983.96, £48,000 had been paid on account and there was a balance due of £448,983.96.

THE INITIAL ISSUES

The claimant issued the costs proceedings and the initial issue was to be whether there was a valid retainer.  However shortly before the hearing the claimant accepted that the retainer was valid.

THE ISSUES THAT THE COSTS JUDGE NOW HAD TO DETERMINE

(1) Whether the termination of the conditional fee agreement by the Claimant limits the entitlement of the Defendant to charge costs in excess of the amount of costs recovered from the defendant in the underlying proceedings.

(2) If so, whether the Defendant’s entitlement is limited to the amount shown in respect of his costs in the schedule of costs produced at the joint settlement meeting.

WHAT COULD THE DEFENDANT SOLICITOR CHARGE?

The major issue was whether the amount the defendant could recover as costs was limited by what was recovered.   The judge considered the terms of the CFA in detail.  The question of whether there was a “cap” depended on how the CFA was terminated and the solicitors response to the termination.  If the solicitor sought costs at once, rather than awaiting events, then there was no cap on recovery.

1. 1. However, Ms Bedford sought to draw the distinction between the situations where the solicitor’s entitlement crystallized on the termination of the retainer and those where the entitlement awaited the outcome.

1. 1. She described the termination by client provision as enabling the solicitors to “stick” or “twist”. They could either ask for immediate payment of their basic charges or they could wait to see if the client won and, if so, seek their basic charges and success fee.

1. 1. If they “twisted”, she submitted, then the provisions consequent on a “win”, including the overall cap, would apply.

1. 1. Clearly that would not be the case where the retainer was determined by death (as in Higgins). Nor would it be the case where the solicitors terminated under clause b(iii) (client’s failure to follow advice to accept settlement) because then the solicitor is entitled to their basic charges immediately and to await the result to claim a success fee. Following Higgins, the overall cap could not apply in circumstances where the basic charges were payable before the claim had concluded.

1. 1. It seems to me that there is a distinction between the situation where the solicitor is entitled to payment before the claim had been concluded (when the overall cap would make no sense) and the situation where the solicitor waits to see the outcome. In the latter case, the overall cap would make sense.

1. 1. I do not read the judgment in Higgins as being inconsistent with that. Saini J. draws the same distinction in respect of “the relevant clauses concerning the end of the CFA before the end of a claim for damages” because “the proper construction of their interaction with the overall cap is plainly that the cap only operates if the client wins” [para 62].

1. 1. The Defendant’s argument is that the overall cap cannot apply where the client terminates the agreement before the case is won. Alternatively, it does not apply where there is no express costs recovery or ascertainable sum recovered in respect of costs.

1. 1. Putting that latter argument to one side for the moment, if the solicitor elects to wait for the outcome of the case and the claim succeeds, while the agreement has been terminated before the case is won, there is no difficulty with applying the overall cap,

1. 1. In my judgment the overall cap does not apply where the solicitor elects to claim their charges before the conclusion of the claim (for the reasons stated in Higgins), but it does apply where the solicitor elects to await the outcome of the claim.

HAD THE SOLICITOR ELECTED FOR IMMEDIATE PAYMENT IN THE CURRENT CASE?

Did the Defendant elect for immediate payment or elect to await the outcome?

1. 1. On 9^th March 2021 Fieldfisher wrote to the Defendant informing him that they had been asked to take over the Claimant’s claim and attached her authority to release their files.

1. 1. For reasons which are not entirely clear, the Defendant did not view that as terminating his retainer until an exchange of emails on 26^th March 2021. In response to an email from the Claimant’s litigation friend that they had lost confidence in the Defendant, he replied:

I have considered this carefully but once formal termination of my CFA has occurred in these circumstances I shall seek payment of the costs and disbursements due as per the agreement term indicated above.

1. 1. The “term indicated above” was that quoted in paragraph 13 under the heading “Ending this agreement”.

1. 1. The Claimant replied: “You are terminated from my case”.

1. 1. The Defendant responded:

I shall proceed on the basis that formal termination of our retainer occurred today.

…

There is real risk my firm faces concerning the costs it has incurred. It is therefore entirely reasonable that now my firm is no longer instructed and risks apparent, the issue of costs owed to the firm must be resolved prior to the file transfer.

1. 1. Ms Bedford submits that this was not sufficient to trigger the first bullet point in clause (a). There had to be a demand for payment which, in the context of a solicitor, would have to be a bill which complied with s.69 Solicitors Act 1974.

1. 1. I think that ignores the factual matrix. There was no advantage to elect to await the outcome of the case, or in Ms Bedford’s words to “twist”, because no success fee would be payable in the event of a win. It seems to me that while the Defendant did not “ask” for payment until he delivered a bill, in March 2021 he had exercised his right to decide that the Claimant must pay his basic charges, expenses etc without waiting for the conclusion of the claim. Effectively, he had said “I’ll stick”.

1. 1. Had a success fee been payable under the agreement, in view of the emails, the Defendant would have had no prospect of arguing that he had exercised his election to await the outcome.

1. Following Higgins, the overall cap did not apply because the Defendant had elected to claim his basic charges before the case was won.