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Firm loses millions of pounds in costs after CFA’s declared unenforceable

A firm has been left with an eye-watering decision on costs, which declared three of its CFA retainers unenforceable leaving it out of pocket for millions of pounds.  This is despite doing a sterling job for their client and securing a famous victory!

The case highlights the significant implications of poor drafting and the catastrophic effects of a deficient retainer.

In the case of Global Energy Horizons Corporation v The Winros Partnership [2020] EWHC B27 (Costs), the Claimant was happy with the work of the Defendant firm in bringing a successful claim against one of the Claimant’s partners for wrongfully appropriating the company’s technology. The Claimant brought in another firm at the quantum stage and the Defendant indicated its position had become untenable and purported to terminate the retainer. Issues arose when the Defendant valued the claim at a fraction of what the Claimant thought it was worth and after it raised concern that it would expose them to a risk of not recovering their costs. After the relationship between the Claimant and Defendant broke down, the Claimant issued proceedings under section 70 of the Solicitors Act 1974 seeking an assessment of invoices rendered to them by the Defendant. The Claimant had paid fees of approximately £7.6m.

Master James of the SCCO was asked to determine preliminary issues including whether three Conditional Fee Agreements were valid.

CFA 1 covered the costs of preparing a letter of claim and attending a mediation.

CFA 2 covered the claim.

CFA 3 covered the quantum phase.

Each agreement included an Advance Fee of CAN$315,000, £1,000,000 and £300,000 respectively that would be retained win or lose, although credited against the fees due under the CFA in the event of a win.

Master James declared that the CFAs were poorly drafted and said two conflicting things. They stated that the Advance Fee would be credited against future billing, but they also stated that it would be kept by the Defendant win or lose.

The latter was deemed fatal to the CFAs.

The Advance Fee meant that a final bill would have never been raised for lower than the amount of the Advance Fee, even if the matter had settled early when the time spent/work done, plus success fee, plus disbursements came to less than the advance fee at the time.

This meant that the CFAs had potential to lead to a claim which was in excess of a 100% success fee.

As a result, it was held that the CFAs entered into breached section 58 of the Courts and Legal Services Act 1990 and were therefore rendered unenforceable.

Thus, unpaid fees would remain unpaid and the millions of pounds already paid would have to be repaid.

The judgment also raises important points in relation to the importance of keeping written records.

It is understood the Defendant has sought permission to appeal.

For all of your costing requirements, our experienced team is here to assist. Call us today on 01733 350880.

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