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Considering varying a retainer or hourly rates?  In Acupay System LLC v Stephenson Harwood LLP [2021] EWHC B11 (Costs), the Court looked at the solicitor/client assessment regarding CFA fairness, the need for independent advice upon the CFA and related issues.  

In summary, Costs Judge Leonard rejected the Claimant’s argument that the conditional fee agreement (CFA) entered into with the Defendant firm of solicitors was a Contentious Business Agreement (CBA) which was void for lack of consideration, and that part of the terms were unfair and unreasonable.

The relevant facts

The CFA between the parties followed a private retainer.  Ultimately, the CFA entered into had been terminated by the Claimant, and there stood an outstanding balance for 5 bills rendered of £339,613.75.  The CFA itself was a discounted retainer that provided for reduced rates in the event of a loss, and in the event of termination the standard non-discounted hourly rates were payable (although the Defendant was only seeking to recover the discounted rates from the Claimant).  In the event of success the standard hourly rates were payable, and if there was an “early success” enhanced costs calculated by the standard hourly rates plus 20% were payable.

Preliminary Issues were Ordered as to a) Whether the CFA is a CBA; b) If so, whether the CFA is fair and reasonable; c) The consequences of the Court’s findings on the previous issues for the Claimant’s liability for the fees and disbursements in the Invoices.

The arguments

The Claimant argued that the definition of “success” in the CFA included payment by the Claimant of a sum that it could not afford to pay; that the Claimant gained no benefit from the CFA whereas the Defendant stood to gain a pecuniary advantage; and that the Defendant was under an obligation to advise the Claimant to seek independent legal advice before entering into the CFA, which the Defendant had not done.  There were also arguments regarding the Defendant’s fees going up rather than down, in the case of the two “highest fee earners” by over 11% higher than the pre-CFA rates.  The Claimant sought to avoid payment under the CFA accordingly.

The Claimant argued that, when the CFA was proposed, the Claimant was 1) already a client of the Defendant; 2)there was a fiduciary relationship between the Claimant and the Defendant such that the Defendant was under a strict duty of loyalty to the Claimant; and 3) the Defendant was not permitted to put itself in a position where its duty to the Claimant and its own interest conflicted;  which proposing the CFA did.

Judgment upon the issues

Turning  to consideration, and whether the Claimant gained any benefit from the CFA,  Master Leonard found it “impossible to avoid the conclusion that contrary to what he now says, (the Claimant) knew that the rates described by the Defendant as standard rates were true standard rates, and that the Claimant was receiving a substantial discount on them. He committed the Claimant to the CFA because he wanted the Claimant to continue receiving that substantial discount.” 

Whether the Defendant was able to, in the event that the Claimant declined to enter a CFA, end the discount applied to its rates, without citing any authority for the proposition was disputed. The Claimant argued that because the Defendant had not charged its full (as opposed to discounted rates) before the CFA was entered into that it was no longer entitled to do so.  That argument was rejected, with Master Leonard noting that he was “unaware of any authority preventing the Defendant increasing the rates after the date specified for such an increase within the engagement letter”.

The judgment confirms that “there was no obligation upon the Defendant to offer a wider range of retainer options, or to advise upon retainer options that were not on offer”.  The benefit to the Claimant upon entering into the CFA was quite plainly that it continued to receive a 30% discount on the Defendant’s standard hourly rates. The hourly rates charged under the CFA offered no basis for any conclusion to the effect that it was unfair (or unreasonable).

The Claimant raised a further issue relating to the definition of “success”, with reference to the Claimant’s ability to make payment.  It was adjudged that “there was no good reason why the Defendant might have supposed the Claimant could not raise the sum due, and at the very least the Defendant might have left it to the Claimant to say if the payment of any success fee would not be possible”.

As to the need for any independent advice, whilst it was common ground that the Defendant owed fiduciary duties to the Claimant as its client, Master Leonard “did not accept that this, of necessity, required that the Defendant advise the Claimant to take independent advice, much less that the Defendant insist upon the Claimant doing so”.  In the instant case the Defendant reminded the Claimant that it could take independent advice, but that the Claimant did not do so.  The Master observed that the Court of Appeal in Surrey v Barnet and Chase Farm Hospitals NHS Trustdid not say that independent legal advice is a prerequisite to informed consent”.

Other arguments raised by the Claimant with reference to costs estimates were not made out and did not offer any basis for a conclusion that the CFA was unfair or unreasonable.

Master Leonard held the CFA, judged properly as a whole, was an entirely reasonable agreement.  The Claimant continued to pay on the basis of heavily discounted hourly rates, when otherwise that discount would have ended. The Defendant continued to accept a 30% discount on its hourly rates in return for the prospect of receiving its standard rates, and a 20% success fee on its standard rates in the event of the ideal outcome of early success. This was not a one-sided transaction, and it was adjudged manifestly not to the exclusive advantage of the Defendant.

On the case facts the issue of whether the particular CFA was a CBA had become academic to the case.  It was not in issue that the terms of the CFA were consistent with it being a CBA, with the notable exception of an express provision to the effect that it was not such.  The Master concluded the CFA was not a CBA on the basis that the agreement expressly provided that it was not a CBA and the parties were bound by their agreement in that respect.

Caroline Cousins is a Costs Lawyer and Deputy Civil Team Leader at A&M Bacon Ltd, where we have a team of costs experts who have a wealth of experience in dealing with all legal costs issues. You can contact Caroline or the team on 01733 350 880 or visit our website www.aandmbacon.co.uk for more information.

Published 12 July 2021

Author – Caroline Cousins

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