Costs News

27 November 2019
go back

Claims under contentious business agreements should be made under part 8

A claim for payment of solicitors' fees said to be due under a contentious business agreement (CBA) should be brought under part 8 and a conditional fee agreement (CFA) can be a CBA, the High Court has ruled.

However, Kelyn Bacon QC, sitting as a deputy High Court judge, said this did not mean that every CFA would be one – the Law Society’s model CFA, for example, specifically states that it is not.

The High Court heard in Healys LLP v Partridge and another [2019] EWHC 2471 (Ch) that Michael and Suzette Partridge bought a property in Spain in 2005 that led to largely unsuccessful litigation in Gibraltar in 2013.

The Partridges later instructed Healys under a CFA to sue the lawyers who had acted for them – Francis Evans QC, Andrew Maguire and a firm of Gibraltar advocates, Charles Gomez and Co.

When the Partridges rejected offers made to them during mediation in March this year, Healys terminated the CFA and the Partridges instructed BLM instead. Two days later, “unbeknownst to Healys”, the Partridges settled their claim against Mr Evans for a “substantial sum”.

Two weeks later, Healys agreed to release its papers to BLM on condition that its disbursements were paid in full and subject to various undertakings, including that BLM would use best endeavours to recover Healys' costs as part of any settlement and would keep Healys fully informed of those endeavours.

The outstanding disbursements were paid to Healys on the same day and the papers were then released to BLM.

Having discovered a week after that the claim against Mr Evans had been settled, Healys sent the Partridges an invoice for their fees and applied without notice for a freezing injunction, which was granted on the same day by His Honour Judge Paul Matthews.

The freezing order required Healys to serve its claim, which it did – formulated as a part 7 claim and seeking payment of more than £810,000 in unpaid fees.

The Partridges made a procedural application, arguing that the effect of section 61 of the Solicitors Act 1974 was that, where the agreement was a CBA, a solicitor could not sue for his costs by bringing a part 7 claim.

Instead, they said, the court has jurisdiction under an application brought under part 8 or 23 to determine whether the agreement was fair and reasonable. If it was, it may be enforced by the court; if not, then the agreement has to be set aside and the costs were simply to be assessed as if the agreement was not made.

The judge accepted the argument that it should be brought under part 8: “The correct interpretation, I consider, is that a contentious business agreement does not, in itself, give rise to a cause of action on the basis of which a claim for costs may be brought.

“Rather, the agreement must first be submitted for the determination of whether it is fair and reasonable. Only once that determination has been made can the court enforce the agreement (if it is found to be fair and reasonable) or simply proceed to an assessment of costs (if the agreement is not found to be fair and reasonable).”

She went on: “At first blush, this might appear to be an arcane procedural technicality.

“In fact, however, the particular procedural route reflects a point of some substance, namely that section 61 provides for a specific layer of protection for the client in relation to a contentious business agreement, in that no cause of action will arise under the agreement unless and until the court has determined that the agreement is fair and reasonable.”

The question was then whether the CFA was a CBA. Ms Bacon rejected Healys argument that a “pure” CFA, where no fees were recoverable on failure, could never be a CBA.

She said that on a “plain and natural reading” of section 59(1) of the Solicitors Act, a CFA was an “agreement as to the solicitor’s remuneration” which, in the case of this CFA, set out an hourly rate.

“It matters not, in that regard, whether the CFA provides that the remuneration is to be reduced or extinguished altogether in the event of failure.”

Ms Bacon said the Court of Appeal had “unambiguously” supported the proposition that a CFA would in principle be a contentious business agreement in Hollins v Russell [2003] EWCA Civ 718.

“That does not, of course, necessarily mean that every CFA will be a contentious business agreement for the purposes of part III of the 1974 Act.

“I note, for example, that the Law Society’s model form CFA for personal injury and clinical negligence cases contains a specific clause providing that the agreement is not a contentious business agreement within the terms of the 1974 Act.

“Without expressing any view on the construction and effect of agreements containing a clause of that nature, I note that the present CFA contained no such clause, nor anything else to suggest that it should fall outside the scope of the section 59 definition.”

The judge ordered that Healys' claim should continue as if it had been commenced under part 8.

She discharged the freezing injunction and replaced it with a proprietary one, with permission to withdraw funds for certain purposes, subject to certain conditions.

John Virgo and Oliver Manley (instructed by Healys) for the claimant, with William Edwards (instructed by Berryman Lace Mawer) for the defendants.

 

Comments

There are no comments. Why not be the first?

Add your comment

 
go back