Costs News

19 February 2020
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CFA without ATE invalid because obtaining cover was condition precedent

A conditional fee agreement (CFA) that made obtaining after-the-event (ATE) insurance a condition precedent was invalid because the solicitor and client failed to do so, a costs judge has ruled.

Deputy Master Friston (pictured) also criticised the “noticeably prolix and opaque” retainers involved, which he described as “quite unlike anything I – or, I suspect, any costs judge – have ever seen before”.

Anthony v Collins [2020] EWHC B15 (Costs) arose out of dispute that followed the death of the claimant’s father. The claimant entered into a CFA with Contested Wills and Probate Lawyers in March 2015 for potentially challenging the will.

Then, in May 2016 – after the defendant admitted it was not valid – they agreed a second CFA for the purposes of securing letters of administration.

After this was done, the claimant issued possession proceedings against the defendant in relation to his father’s house, and a few months later entered into a new CFA to cover this part of the case. The defendant gave in and settled, agreeing to pay indemnity costs.

The claimant sought costs of £57,000 for the possession proceedings, inaccurately said in the bill to be conducted under a private retainer on hourly rates.

His solicitors repeatedly refused requests to disclose any funding agreement but eventually withdrew the bill and replaced it with one that was still not accurate about the funding arrangements. The defendant alleged misconduct by reason of miscertification.

Deputy Master Friston rejected an application for provisional assessment as he could not understand the retainer documentation.

Giving his ruling on the detailed assessment, he said of the retainer documentation: “I should explain that it is quite unlike anything I – or, I suspect, any costs judge – have ever seen before. Some of it was provided to me electronically but, when printed onto paper, it filled an entire lever-arch file.

“I spent some time removing duplicate pages but, even once I had done this, it barely squeezed into a standard ring binder. The documentation was difficult to navigate: not only were there three conditional fee agreements (which were linked to each other in various ways), but those agreements were divided into a number of ‘kits’, ‘sections’, ‘parts’, ‘topics’ and ‘schedules’.”

The first CFA was 115 pages long, including a 48-page ‘Disclosure Kit’ which the solicitors said the client should read first.

The judge described this as an unreasonable request. “It took me just under two hours to read the [CFA]… it was simply too long and too opaquely drafted to expect any client to read it (especially a consumer client—in this instance, a taxi driver).”

Not only was the CFA’s structure difficult to follow, but it was also “remarkably repetitious and prolix; it is littered with typographical errors, and is replete with language that was anything but easy to understand. In short, it is a badly drafted document. The same can be said of the other two agreements”.

Deputy Master Friston found that the first CFA also included obtaining letters of administration and that it was varied by the second so as to make a single contract of retainer which became spent when the letters were granted.

The third CFA was “a relatively svelte 30 pages long” and “slightly” better written. It said the agreement was “conditional upon you getting insurance cover to cover the risk that you may need to pay the legal costs of the other side, and we must approve the terms of the cover”. No such cover was ever taken out.

The firm’s principal, Terence Johansson, said this was included by mistake but the judge rejected the various arguments made by his barrister that the clause was impliedly disapplied or waived – for one thing, the claimant was unaware of the condition’s existence, making it impossible for him to waive.

In any case, it would have been a variation rather than a waiver and as such ought to have been in writing.

The deputy master said: “I take the view that the ATE condition was a condition precedent to the making of the Third Agreement and that it could not be disapplied by the parties’ conduct. As such, I find that the Third Agreement was never made.

“It is not in dispute that the possession proceedings were intended to be funded on a conditional fee basis, so I conclude that the claimant entered into an unwritten conditional fee agreement, this being in breach of section 58(3)(a) of the Courts and Legal Services Act 1990 (as amended).”

This was clearly a material breach and he said that, “while I reach the conclusion reluctantly and with regret, I find that the claimant’s costs are claimed in breach of the indemnity principle”.

Deputy Master Friston went on to outline his conclusions were he wrong on this. While he said that, in principle, the court could find an agreement void for uncertainty because it was “so prolix and convoluted as to defy comprehension”, this was a high hurdle that was not reached here.

“It is undoubtedly true that the solicitors have created a contractual quagmire in which even they lost their way. That may be so, but I take the view that it is necessary to distinguish between conceptual uncertainty (where the court is, for all practical purposes, asked to write the terms of the contract for the parties) and uncertainty arising out of inconsistent or ambiguous terms (where the court is asked merely to determine the meaning of the words used). In my view, the uncertainties in Third Agreement fall into the second of these two categories…

“I have no doubt that there are dozens, if not scores, of ambiguous and inconsistent terms in the retainer documentation that would take days to disentangle. Indeed, the retainer documentation (including the Third Agreement) could be likened to a hydra.

“That may be so, but Mr Hogan [for the defendant] has not been able to direct me to any aspect of the Third Agreement where the court’s duty to interpret the documentation would be ‘legally or practicably impossible’. In view of this, I am unable to find that the Third Agreement is void for uncertainty.”

The judge rejected too the submission that the CFA fell foul of O(1.6) of the SRA Code of Conduct 2011 by not being a fee agreement which the solicitors considered “suitable for the client’s needs”.

While all three CFAs were “not just unsuitable for the claimant’s needs, but entirely unsuitable”, he said the solicitors had to have actual knowledge of this to be in breach.

“Here, the claimant (or, in reality, Mr Johansson) escapes by the skin of his teeth… I find that at the time that Mr Johansson drafted the retainer documentation, he genuinely (albeit entirely unreasonably) believed them to be suitable for the claimant’s needs.”

Deputy Master Friston added: “In any event, I bear in mind the interests of the administration of justice. In my view, it would be undesirable if paying parties were to be permitted to raise challenges as nebulous as whether a contract of retainer was ‘suitable’ or in the ‘best interests’ of the receiving party...

“I view with some trepidation the spectre of parties asking the court to make an evaluative judgment as to whether contracts of retainer were sufficiently ‘suitable’ to satisfy the indemnity principle. In my view, it is not the role of a costs judge carrying out an assessment between opposing parties to consider such matters.”

But he found that the original bill of costs was miscertified and that this should have been obvious to the solicitor with conduct of the case.

This was improper and unreasonable, as were the failure to try and rectify the miscertification and attempts to deflect the defendant’s enquiries. Not disclosing the retainer documentation was unreasonable.

He imposed a 25% reduction of the claimant’s profit costs, while acknowledging that “this sanction is likely to be of little practical effect” given the earlier finding that the CFA was unenforceable.

Matthew Smith (instructed by Contested Wills and Probate Lawyers) for the claimant, and Andrew Hogan (instructed by Morgan Phelps) for the defendant.


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